Time for Transparency Clarity Honest Forthright Clock

Just a few days after the U.S. Securities and Exchange Commission (“SEC”) voted to officially propose that certain registered funds provide a lot more information about their operations, the State of Rhode Island has followed suit. In a May 26, 2015 press release, General Treasurer Seth Magaziner describes the Ocean State as a leader in public pension fund transparency, adding that “Rhode Island will only invest with fund managers that agree to public disclosure of performance, fees, expenses and liquidity.” Other initiatives include the creation of a website for public access, the signing of an “Investor Code of Conduct Pledge” by every investment manager and the debut of “full governance reviews of the State Investment Commission and the Retirement Board” by late 2015.

A draft version of the “Transparency in Government Agreement” acknowledges that asset managers may provide some proprietary information that the Employees’ Retirement System of the State of Rhode Island (“ERSRI”) will hold back from the public. However, details about asset managers that allocate to mostly illiquid assets will be disclosed. Facts such as drawdowns, vintage year, management fees, direct expenses and “cumulative net internal rate of return” will be visible with monthly, quarterly or annual reporting requirements, depending on the variable. Visitors to investments.treasury.ri.gov can download data about the various Rhode Island retirement plans and see for themselves how billions of dollars are being allocated. The newest report is based on data from April 29, 2015 and includes a fund-specific breakdown of $1.347 billion in alternative investments.

It is unclear whether this move towards enhanced reporting is related at all to an April 16, 2015 decision by Rhode Island Superior Court Associate Justice Sarah Taft-Carter regarding settlement of a benefits-related lawsuit brought by municipal workers against the Governor. Another motivation could be the repeated headlines about the extent to which Rhode Island pension plans should be invested in alternative investments that include hedge funds. The Providence Journal reported a 14.4% or over $1 billion exposure to hedge funds as of August 2014. See “Raimondo sees no reason to follow California’s lead, exit hedge funds” by Katherine Gregg (September 16, 2014). Things are changing, presumably on an as-needed basis. Earlier this year, Ms. Gregg wrote that the State had terminated one contract with a hedge fund manager. See “Rhode Island dropping stake in low-performing hedge fund” (March 2, 2015).

It remains to be seen whether heightened access to data will garner intense interest and whether a clamor for even more granularity follows. It is hard to see a downside of providing copious amounts of information as long as it is (a) accurate (b) timely (c) representative of the financial well-being (or lack thereof) of any or all of the municipal benefit plans and (d) clear about the process being followed by trustees to arrive at key decisions on behalf of participants.