Rhode Island Treasurer Seth Magaziner Rhode Island Treasury Department

Rhode Island Treasurer Seth Magaziner, a former financial executive elected in 2014, has announced a landmark proposal to increase transparency at the state’s pension fund. Unlike dozens of states around the country, Rhode Island will now disclose the full range of fees and expenses it pays to investment managers and will fully disclose those managers’ performance.

“It really comes down to a basic principle,” said Magaziner, who announced the proposal Tuesday. “When you're managing public funds, the public has the right to know.”

In many states, details of public pension investments have become closely guarded secrets known only to lawmakers and financial executives hired to manage the savings of teachers, firefighters, cops and other government employees. From Florida to Illinois, states across the country have passed laws exempting financial details of these public investments from open records laws. Meanwhile, in New Jersey, Republican Gov. Chris Christie’s appointees recently admitted that they had been failing to disclose hundreds of millions of dollars of fees paid to financial firms managing part of the state’s pension system. Christie’s administration now faces a formal investigation over the skyrocketing fees, some of which have gone to firms whose executives have contributed to Republican groups backing Christie’s elections.

In Rhode Island, the state’s pension fund was engulfed in controversy under the previous treasurer and current governor, Gina Raimondo, a Democrat. Raimondo in 2012 championed a law cutting pensions for public employees while shifting state investments into high-risk, high-fee “alternative investments” like private equity and hedge funds. As treasurer, Raimondo refused to disclose information related to fees and performance despite multiple public records requests made by media organizations. A former financial executive whose old firm manages money for Rhode Island, Raimondo justified one high-profile rejection by declaring that financial executives are trying “to minimize attention around their own compensation.”

As public scrutiny has intensified over the secrecy surrounding pension investments, Magaziner’s proposal would set Rhode Island apart by mandating full disclosure of fees and expenses, fund-level performance, and liquidity -- that is, whether or not manager’s place restrictions on investors redeeming their funds.

But while Magaziner has proposed unprecedented transparency, he refused to step back from Raimondo’s signature decision: a massive amping up of pension fund investments into private equity, hedge funds and real estate, despite ample evidence showing that the high-fee investments underperform the market as a whole. Magaziner has said that these investments are not correlated to the larger stock market, which makes them a good way to diversify the state’s portfolio.

“Alternatives aren’t correlated to the market,” said Magaziner. “We need to be able to diversify our portfolio.” Magaziner’s spokeswoman added that the pension fund’s foray into alternatives has meant that Rhode Island is “taking less risk.”

However, independent experts nearly universally agree that alternative investments are riskier than both stocks and bonds.

“Magaziner's transparency proposals are laudable,” said Ted Siedle, a former attorney with the SEC who has investigated the Rhode Island pension fund. “But his suggestion that alternative investments are somehow not correlated or lower risk than the stock and bond markets is unsubstantiated based on 30 years of forensic experience. Rhode Island still has a long way to go before taxpayers and public employees can be sure that the pension fund is safe."

Magaziner told International Business Times that his transparency initiative will not extend to releasing the full text of agreements between the state and private financial firms that manage Rhode Island pension money. Recent leaks of such contracts in other states have raised concerns that the terms of such deals allow money managers to charge exorbitant undisclosed fees.

Magaziner did pledge to call for national standards for disclosing information about public pensions investments in notoriously opaque entities like private equity firms. Currently, as the California Public Employees Retirement System notes on its website, "There are no generally accepted standards, practices or policies for reporting private equity valuations."

“What I consider to be very basic information, oftentimes can be very difficult for the public to access,” said Magaziner. “This has to change.”