By David G. Barry
The Rhode Island State Investment Commission has approved diversifying the allocation mix of a special state fund, clearing the way for it to be invested in such sectors as private equity, non-core real estate and private credit.
The OPEB Trust was established by Rhode Island’s General Assembly to pre-fund non-pension retiree benefits. Previously, the state had funded such benefits on a pay-as-you-go basis. Since being funded in 2011, the fund has grown to approximately $523 million.
During its 11 years of existence, OPEB has had a simple asset allocation, with 65% invested in U.S. large cap public equities and 35% in U.S. aggregate bonds.
Under the new plan, the fund will transition to an allocation that will feature 40% in globally diversified public equities and 5% in private growth, which would include private equity and non-core real estate. The new mix also features 21% allocated to “total income,” which includes private credit, CLOs and liquid credit, and 34% to “total stability,” comprised of 4% allocations to core real estate and real estate, 8% to inflation protection and 26% to volatility protection, which are U.S. bonds.
In a memo outlining the changes, the office of state Treasurer Seth Magaziner – which directs the fund's investing – said the new allocation has the “scale to meaningfully invest in additional diversifying asset classes that will markedly increase the plan’s expected return without significantly affecting expected volatility.”
The plan is currently 60.1% funded and is projected to reach total funded status in 2031, when it hits $1 billion.
The State Investment Commission also approved several commitments sought by the $10.5 billion Employees’ Retirement System of Rhode Island (ERSRI). Specifically, it approved up to $12.5 million to The Column Group Fund V, which is focused on life science therapeutic discovery and company creation, and up to $12.5 million to The Column Group Opportunity Fund III, which is pursuing expansion and later-stage investments. These will be predominantly in follow-on rounds of TCG-backed companies.
ERSRI committed $25 million to another Column Group fund that closed last year. ERSRI backed the two funds even though its private equity allocation was above its 12.5% target at 14.7% as of April 30.
It also approved a commitment of up to $20 million to Crow Holdings Realty Partners X, L.P. The fund is expected to be anchored by exposure to industrial and apartment properties. ERSRI seeks to invest $70 million to $80 million annually in non-core real estate. So far in 2022, it has invested $25 million. ERSRI invested $40 million in Crow’s 2021 fund and invested $25 million in a fund that the firm raised in 2015.
The moves came as the Virginia Retirement System announced that it had hired Rhode Island’s chief investment officer, Andrew Junkin, to be its new CIO. Junkin joined Rhode Island two years ago after being president of Wilshire Consulting.
Benjamin Smith, director of communications for the state treasurer’s office, said that a search for Junkin’s replacement is “already underway.” He did not provide a timeframe for finding a replacement.