The $8.3 billion Employees Retirement System of Rhode Island returned 8.03% for the fiscal year ending June 30, ahead of its 7.0% annual target, and its benchmark, which returned 7.5% during the same period.
The fund also outperformed a traditional 60% stock/40% bonds portfolio, which would have earned just 6.25%. The fund also reported three-, five-, and 10-year annualized returns of 6.3%, 7.2%, and 5.8%, respectively, compared to its benchmark’s three-, five-, and 10-year annualized returns of 6.0%, 7.0%, and 5.6%, respectively.
“We have taken our investment strategy back to basics for our members,” General Treasurer Seth Magaziner said in a release, referring to his “Back to Basics” asset allocation plan, which was enacted in 2016. Under the plan, a majority of the pension fund is invested in strategies designed to produce strong returns over time. The growth and income strategies consist mainly of low-fee index funds, while the rest of the portfolio invests in assets designed to protect the pension system against market risks such as inflation and volatility.
Part of the strategy included exiting most hedge funds in favor of more traditional strategies for growth and stability. Over the past 12 months, Magaziner said investments in private equity returned 17.9% and global index funds earned 11.5%, net of fees and expenses.
As of May 31, the fund’s asset allocation was 54.8% in “growth,” 37.5% in “stability,” and 7.4% in “income.”
The “growth” assets include US equity, international developed equity, private equity, emerging market equity, non-core real estate, and opportunistic private credit. The “stability” assets include investment-grade fixed income, absolute return, core real estate, long-duration Treasuries, systematic trend following, cash, Treasury inflation protected securities (TIPS), private infrastructure, and natural resources. And the “income” assets include liquid credit, high-yield infrastructure, private credit, and real estate investment trusts.
All performance figures are net of fees and expenses.