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N.J. to slash pension investments in hedge funds that were criticized by unions

Friday, August 5, 2016   (0 Comments)
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NJ.com 08/05/16

The State Investment Council on Wednesday agreed to slash New Jersey's investments of public-sector pension dollars in hedge funds by more than half, responding to labor union concerns that the alternative investments aren't paying off. At the council's last meeting in May, union representatives called for drastic reduction in the pension system's hedge fund stake, from 12.5 percent to 4 percent, but the move failed on a tie vote. Council members appointed by Gov. Chris Christie warned such a change would be imprudent without fully vetting its impact on the total investment strategy.

The compromise plan will see the investments cut back to 6 percent, and reduce the investment in alternatives from about one-third to a quarter. "This is a good first step to significantly reduce hedge fund exposure," Adam Liebtag, vice chairman of the council and a representative of the AFL-CIO, said in a statement. "The new plan will reduce fees by $120 million and help put the pension plan on stronger footing." Liebtag wanted to shift that money to standard investments such as cash, stocks and bonds.

The fund paid out $400 million in management fees and $328.4 million in performance bonuses last year for its alternative investments, which make up about a third of the total portfolio. The pension fund was valued at about $72 billion at the end of May. The revised strategy will reduce the number of hedge funds from 40 to fewer than 25 and will adjust the management fee and bonus structure, according to a division report. The change "seeks to address the concerns ...  in that it reduces the overall allocation to hedge funds while maintaining a reasonable level of diversification and downside protection," the report said.


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