Crisis Protection Strategy Defends Rhode Island Pension Fund During Market Decline
TREASURER SETH MAGAZINER
Rhode Island’s pension system significantly outperformed benchmarks despite unrest in the global financial markets in March. In particular, Rhode Island’s Crisis Protection allocation, introduced by Treasurer Magaziner in 2016 as one of a series of changes to the pension system’s investment strategy, helped to buffer the system from the market turmoil spurred by the COVID-19 crisis.
In a month when U.S. stocks declined by 14%, the Rhode Island’s Crisis Protection strategy, designed to deliver strong returns when the stock market is under stress, returned 6.5% in March. Bolstered by the Crisis Protection allocation, the state’s total portfolio only saw a 6.7% decline.
In addition to outperforming the stock market, the Rhode Island pension system significantly outperformed a traditional 60% stock / 40% bonds portfolio, which would have returned -8.3% on the month.
The Crisis Protection strategy is comprised of long-duration United States Treasury bonds and systematic trend following managers. The Rhode Island pension system began the year with $787 million invested in Crisis Protection. Year to date, the Crisis Protection allocation has since saved the pension system more than $270 million compared to if those funds had been invested in the S&P 500 over the same period.
“When the State Investment Commission adopted our new investment strategy in 2016, we prepared for an eventual market downturn by including a Crisis Protection allocation to provide long-term growth over time and stability when markets are challenging,” said Rhode Island Treasurer Magaziner. “The financial markets continue to be volatile and we are monitoring the situation closely, but no matter what happens we remain committed to ensuring that the pension system makes it through this crisis on a strong and stable footing.”
Calendar year to date, the Crisis Protection strategy has returned 15.1% compared to a global stock market return of -21.9% and a 60/40 portfolio return of -12%, with the state’s total plan declining by just 9.5%.
Detailed information about the fund, including the ‘Back to Basics’ investment strategy, performance, and information about its managers are published online as part of Treasurer Magaziner’s “Transparent Treasury” initiative at: investments.treasury.ri.gov