Zut Alors! Rhode Island, the smallest state in the Union with a penchant to screw up big, has enough public sector influence to rival France. It’s a bit of European-style socialism right here at home, and it’s illustrative of what Bernie and every other pandering politician claims to want for the country. It’s also an example of what can happen when government enters the retirement business, including 401(k)s and similar retirement savings vehicles.
For years, the Ocean State’s pension benefits were the envy of the redistributive left, equal parts generous and unsustainable that made signs of eventual reckoning large enough to see from space, but on and on they fiddled. Controversies of elections-cycles past included a plan to award school crossing-guards full pensions and benefits.
Treasurer—now Governor—Gina Raimondo ran as a democrat not so much on fiscal responsibility but fiscal reality. The (golden) goose was cooked and steep cuts were required. No arguments against were left to be made; it was what it was. Raimondo was hailed for her political and financial prowess and for a time became the darling of pundits on the conservative right.
One lesser known move, however, was a multi-billion dollar alternative investment gamble with a portion of the pension’s assets, one modeled on secrecy traditionally associated with hedge funds but hardly consistent with transparent government. Credit Forbes’ contributor Edward Siedle for bringing to light the actions of Raimondo protégée and successor Seth Magaziner, a 31-year old novice investor who’s continued the course Raimondo set in place, complete with the aforementioned lack of transparency. This despite his campaign pledge to open the strategy to public scrutiny.
We have no issue with hedge funds and other non-correlated asset classes, but it’s of course about suitability, and whether or not the actions were entirely thought through. The state whipsawed from extreme largess to deep cuts to high-risk, high-return investment strategies that were deemed necessary to rescue retired pensioners from certain ruin. Something to keep in mind now that states seek more influence and control over private sector retirement savings.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
