Q-and-A: Treasurer defends criticism
Gina Raimondo is Rhode Island’s Democratic general treasurer who has a background in venture capital. She won election to her current post in 2010, defeating opponent Kernan King by a wide margin. There has been a lot of discussion recently about Raimondo being a candidate for governor in the 2013 gubernatorial election.
Last month Raimondo visited Jamestown to join the local Rotary Club for breakfast. Afterwards she stopped by the Jamestown Press office.
Q: Would you care to announce today that you are a candidate for governor?
A: No, I would not, mostly because I haven’t decided whether I am or not.
A lot of money has been raised on your behalf, more than might be raised for another run at treasurer.
I’m thinking about it. I am seriously considering running for governor and I’m not in a position to self-fund a campaign. I can’t write a multimillion-dollar check on my own. I’m thinking hard about running, and I have a lot of support. A lot of people are encouraging me and hoping I will run, and so I’m able to raise money.
You recently tweeted that women make 77 cents on the dollar compared to men. Other sources have put that figure at 90 cents. Do you see any disparity there? Do you think that the situation is improving or getting worse?
That’s a good question. Our source is the U.S. Census Bureau. It’s possible there is another source with other numbers. It’s a problem. As a workingwoman, I’ve seen firsthand how women are passed over for promotions. Women make less than men. Until it’s fully equal, we have to continue to work for that.
One of the programs I run out of my office is about financial empowerment. The program is called Empower RI and includes financial literacy and financial coaching. That is for men and women, but a lot of what we do is teaching women how to be financially secure, smart about managing their money, and staying out of debt. We want women and men to be financially stable.
Do you know Ted Seidel personally? (Ted Seidel is a columnist who recently wrote articles on Forbes.com titled “Rhode Island public pension reform looks more like Wall Street feeding frenzy” and “Rhode Island’s scary state treasurer.”)
No, absolutely not.
Some of the attacks he’s made on you seem personal. Does he have an axe to grind with you?
He may, but I don’t know him at all.
He’s made a lot of charges. The main one is that in moving the state’s pension money to more alternative investments, you have put people’s pensions at greater risk.
I am one of nine members of the State Investment Commission, which is the investment committee that makes these decisions. Our job is to provide strong, long- term returns without taking too much risk.
In 2008-09, the portfolio was higher risk than it is today, and as a result, when the stock market crash happened, the pension fund lost $2.1 billion, which was 26 percent of its value. The primary reason for that was too much of the portfolio was in U.S. equity, or in things that are perfectly correlated to U.S. equity. So when equity went down, much of our portfolio went down.
The State Investment Commission is saying that we can’t let that happen again. The next time the stock market crashes, we want to have a little cushion. We have moved into more alternatives – that is correct – specifically to reduce risk in the portfolio. We selected hedge funds and private-equity managers that are lower risk and reduce the risk in the portfolio, mostly by diversifying it.
For instance, some of the hedge funds we’ve chosen invest in commodities, currencies or different strategies that are meant to be countercyclical to U.S. equity. We’ve run the numbers, and if the portfolio we have now had been in place during the 2008-09 crash, it would have saved half a billion dollars.
The program we’ve put in place has reduced the risk in the portfolio by 10 percent without giving up the return. So in the past 12 months, our return is 9.8 percent with less risk. Our job is long- term returns at lower risk. That’s what the hedge funds are designed to do. A lot of these hedge- fund managers make too much money. They’re colorful figures. There are a lot of issues, but as a fiduciary on the pension board, we have to put all of that aside and say what the best way is to manage the money so that money is there for retirees. It’s working.
You said that there is less risk, but how do you quantify that?
Basically they measure volatility. You know that if you put money in the stock market 10 years ago, you still have about the same amount of money. It’s pretty sad because it goes up and down. Standard deviation is the measure they use to measure volatility, and the stock market is highly volatile as we’ve seen.
These hedge funds have a much lower level of volatility. They just have more tools in their tool kit to invest than you or I. We’ve chosen to pay fees in order to get access to these tools, but all of our returns are net of these fees. So when I say we’ve made 9.8 percent, that’s net of fees.
I don’t like paying fees. I changed the custodial banker from State Street to Bank of New York Mellon – the first time in 20 years that we did a request for proposal – and that saved $300,000 in fees. We just did a new RFP for banking relationships and that saved another $300,000 in fees. I think the point about fees is that you want to pay for value. If you pay some money, get value with less risk, get better returns, and your return net of fees is strong, I think that’s money well spent.
So you’re saying that there is less risk in hedge-fund investment?
In the ones we’ve chosen. There are 9,600 hedge-fund companies. Many of them are high risk. We chose 19, specifically the kind that run lower-risk strategies. It’s working. If it stops working, we’ll make a change.
It used to be that if you wanted to preserve your money you put it in bonds. Bonds are paying nothing. Our job at the State Investment Commission is hard. We have to hit a 7.5 percent investment return in order to pay all the money to pensioners. The old way of investment was to put 60 percent in stocks and 40 percent in fixed income. If you put 20 to 40 percent of your portfolio into bonds, you make no money. We live in a strange world now where treasuries are paying basically nothing. We have to figure out how we can put our money into something that’s lower risk so you know it will be there, but make some return.
How much of your investments are in alternatives?
We have about 22 percent in alternatives. There is about 15 percent in fixed income. The state of Rhode Island has been in alternatives for 30 years. We’ve increased it somewhat, and we’ve gone into hedge funds, but they’ve been in private equity, which is an alternative asset, and done really well with it. The thing is that you have to have a balanced portfolio.
This is Part I of a two-part interview with Treasurer Gina Raimondo. Part II will appear in next week’s Press.