PROVIDENCE, R.I. — Rhode Island plans to scale back its investments in hedge funds by more than $500 million over the next two years, and reallocate those funds to more traditional investments with lower fees.

General Treasurer Seth Magaziner on Wednesday proposed major changes to the state’s pension system holdings, which have experienced lagging returns.

His plan was unanimously approved by the State Investment Commission on Wednesday.

The Democratic treasurer is essentially reversing some of the strategies created by current Democratic Gov. Gina Raimondo, when she was his predecessor as treasurer.

“The fee structures at most hedge funds are not justified by the returns that are being produced,” Magaziner said Wednesday. “We went back and found over the last three years, the hedge funds we’re investing in were making a decent return but most of the value was staying with the managers.”

Magaziner said the pension system is performing positively, but can do better. The system earned about $334 million in investment gains and contributions this year, but lost $256 million in pension benefit payments for a net increase of $77 million.

About 15 percent of the state’s pension assets are allocated in hedge funds, making it a “significant outlier” among the nation’s largest pension funds, where the average ratio is 4.5 percent, Magaziner said. He wants to get Rhode Island’s hedge fund ratio down to about 6.5 percent, cutting by about half the allocations that now amount to $1.1 billion. He said the plan was developed after months of digging into data and consulting with experts.

He declined to criticize Raimondo for investing so much in hedge funds, noting that she came into the treasurer’s office in 2011, after the fund had taken a hit during the 2008 recession because of risky investments made earlier.

“She was absolutely correct in recognizing the portfolio was too risky and needed to dial that risk down,” Magaziner said. He said he presented his plan to her last week and she was supportive.

Raimondo spokeswoman Marie Aberger said in a statement Wednesday that the new direction is in “keeping with the strategy of having a diverse mix of investments to protect against risk, and the governor continues to support that approach to make sure people’s pensions are there when they need them.”