All eyes on Gina

By PHILIP EIL  |  October 30, 2013

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BUT A LOT OF PEOPLE HAVE CRITICIZED THE LACK OF RETURN FROM HEDGE FUNDS, COMPARED TO OTHER INVESTMENTS. SO ARE YOU TALKING ABOUT SAFETY, THEN, WHEN YOU TALK ABOUT THAT “BEST PRODUCT AVAILABLE”? We have a really underfunded plan. If I were in Wisconsin, with an extremely well-funded plan, maybe I wouldn’t be so worried about the risk.

We could argue legitimately about what’s the perfect investment strategy. Here’s what you cannot argue about: this pension system lost two billion dollars — 26 percent of its value — in the [2008-’09] crash. We can’t sustain another one like that. Can’t do it, [or] the system will crash again. So we are therefore really focused on the downside and giving up a little upside for that.

We’ve put in place this basket of products to reduce risk and it’s working. You can quantify the risk and it’s substantially lower. Our investment advisors have told us: if this basket of funds was in place in 2008, it would have saved us half a billion dollars. So in my mind, if we’re paying $10 or $20 million dollars more in fees in order to save $500 million dollars of losses, that’s a good investment.

BUT I THINK, NEVERTHELESS, WALL STREET — AND HEDGE FUNDS, IN PARTICULAR — HAVE A SERIOUS IMAGE PROBLEM RIGHT NOW. Agreed. Well-deserved. Like I said, they make too much money. They should pay more in taxes. And they’re very colorful.

WHAT DOES “COLORFUL” MEAN? A lot of these [hedge fund manager] guys, they do these absurd things: they throw lavish parties, they rent out a football stadium or a baseball stadium for their 50th birthday party. They do these things that upset me and upset the average working family — as they should. And they should be more regulated. They should pay more taxes.

But my job is to manage the money so pensions are paid, not to express my political views in the way we manage the money. And I know, with certainty, that if we go through another thing where we lose two billion dollars of money, there’s a risk someone’s pension won’t get paid. And I don’t want to do that. Even though I am enduring serious political heat for this. It would be much easier for Gina Raimondo, politically, to say, “Oh, forget it!” dump the hedge funds, and do something [else].

BUT, DESPITE WHAT YOU JUST SAID ABOUT SEPARATING POLITICAL VIEWS FROM INVESTING, DIDN’T THE STATE INVESTMENT COMMISSION JUST VOTE TO PURSUE DIVESTMENT FROM A GUN DISTRIBUTOR THIS PAST WEEK? Yes, that was an investment decision.

IT WASN’T A POLITICAL DECISION? No. Absolutely not. We had been thinking about it for 10 months. They took a unanimous vote to get out of guns.

BECAUSE GUNS ARE A BAD INVESTMENT? Yeah. Because guns are a bad investment. Here’s what we basically thought: “There’s plenty of other ways to make money, besides fueling the gun industry.” It’s highly regulated. There’s regulatory risk. The federal government could pass a law tomorrow which cuts the value of a gun company in half. There’s headline risk.

And it’s just wrong. I’m a mother. I drop my kids off at Providence public school. You’re afraid. And so, if we can, any time there’s an opportunity where it’s the right thing to do and the right investment decision, it’s an easy decision.

SO IF QUESTIONS OF RIGHT AND WRONG DO ENTER THE EQUATION, EVEN IF THEY’RE NOT PARAMOUNT, SHOULD WE THEN BE HAVING CONVERSATIONS LIKE, “ARE WE GOING TO DIVEST FROM FOSSIL FUELS, AS A STATE?” We should have those conversations. They’re good conversations to have. And actually we are having them. I’ve asked the investment commission to work with me to come up with a corporate governance policy. The state’s never had one. Many pension systems do. And it’s [about] all these issues; it will set up guidelines for how you think about these issues, like diversity.

See, the question we’re always think about is: risk. So, for example, if the fossil fuel industry is higher risk and declining, there are good investment reasons to not go into that. If your company has no women or people of color on its board or on its management team, I’d argue it’s not as well run as it could be. We’re in the process right now of putting together a policy for how to handle that whole bucket of things.

WHEN CAN WE EXPECT THAT? It took the state of California pension system two years to do theirs. These are, as you can imagine, pretty challenging issues. So I don’t have a timeline. But it’s months, not weeks.

IN AUGUST, MIKE STANTON WROTE APROVIDENCE JOURNAL ARTICLE, “IN HEDGE FUND WORLD, TRANSPARENCY TAKES A HIT,” WHICH COMPELLED FOUR GROUPS — THE RHODE ISLAND PRESS ASSOCIATION, THE ACLU, COMMON CAUSE OF RHODE ISLAND, AND THE LEAGUE OF WOMEN VOTERS — TO SEND A LETTER TO YOUR OFFICE VOICING CONCERN ABOUT A LACK OF PUBLIC ACCESS TO INFO ABOUT PENSION FUND INVESTMENTS. WHAT CAN YOU TELL US ABOUT THAT? So, with respect to transparency. . . I have gone above and beyond to push the envelope on disclosure and transparency since I’ve been in office. For example, I launched the state’s first-ever investor relations portal. We put everything online: all of the investment committee minutes are online, all the fees. We’re one of only a handful of pension funds around that country that do that. I’ve [also] instituted something called the “investor pledge,” [where] every single money manager — we make them sign a pledge that says they haven’t given me a dime in campaign contributions. And if they have, they can’t do business with me.

The issue here is we’ve given as much [information] as we’re allowed to give, by law. In these instances, we’ve signed contracts with these firms to keep certain information confidential. And it’s legitimate, like trade secrets, competitive information, business strategy. And if we divulged that, it would actually hurt our interests, because it would inhibit their ability to do that strategy.

BUT IN A STATE WHERE WE HAVE LAWS BARRING INVESTMENT IN CERTAIN PARTS OF THE WORLD, LIKE SUDAN AND IRAN, HOW DO WE KNOW WHAT’S HAPPENING BEHIND THE CURTAIN IS ABIDING BY THOSE RULES? They have to certify to us, “We’re not in Sudan, we’re not in Iran. . . Northern Ireland.” And by the way, when we come up with a corporate governance policy, they’re going to have to check off those boxes, too.

But I do want to be clear. Our investment advisors and our investment staff are aware of the holdings of our alternative asset managers, but as per law, we’re not allowed to give up certain proprietary business strategy information to the public. It’s not like the managers are allowed to keep us in the dark. Anne-Marie [Fink], who’s our chief investment officer, can walk into one of these firms and they have to share what they’re doing. But by law, we can’t give that out to the public.

GETTING BACK TO PENSION REFORM, DO YOU THINK ANY PARTICULAR POINT OF CONFUSION PERSISTS ABOUT WHAT HAPPENED HERE IN 2011? I think these paid-for attacks are trying to suggest falsely that the General Assembly and I made these changes to the pension system in order to help Wall Street. And also they’re saying that I did this all on my own, when in fact we had ten months of open debate. We had a pension advisory group of a dozen people that met in public. Four of those people were from organized labor; they sat at the table, we had 36 hours of public hearings that they were all at. The General Assembly voted overwhelmingly in favor of it. And it fixed the problem. And the whole purpose of it was [to] make the system healthy so pension checks are there, avoid another Central Falls. Those are the facts. But now I’m currently the target of this personal smear campaign which is kind of revising history.

THE TREASURER’S RACE IN 2010 WAS YOUR FIRST RUN FOR PUBLIC OFFICE AND YOU’RE STILL A RELATIVE NEWCOMER ON THE POLITICAL SCENE. DO YOU HAVE ANY REGRETS ABOUT STEPPING INTO PUBLIC LIFE? Absolutely not. I feel so great about the work we did. And, I mean, look: if you read the paper or watch the news and you see people in Central Falls, it’s not a joke. They’re losing their houses. They’re getting kicked out of their houses, because their pensions were cut in half. That was going to happen if we didn’t take action. So I feel great. We took action to avert that human suffering. And politics is ugly and I’m the target of it right now. So be it.

Very few times do you see government work as well as it worked when we solved this problem. It was an open process, a long process. We built consensus and we solved the problem — a really tricky problem. I’m extremely proud of that work and the work the General Assembly did.

You know, my father worked at Bulova watch. [When] the factory went overseas, he lost his job, and his pension got whacked because he was forced into early retirement. Now, my parents’ pension is less then $200 a month. That’s hard. That really hurts them. They have a social security check and a couple-hundred-dollar-a-month pension. The decisions made by the executives of his company were made 30 years ago. He still suffers.

So when I’m outta here — win, lose, or draw — if it weren’t for the work we did, a lot of people would be suffering.

Philip Eil can be reached at peil@phx.com. Follow him on Twitter @phileil.

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