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Public worker union bid to slash N.J. pension hedge fund investments fails

Friday, May 27, 2016   (0 Comments)
Share | 05/27/16

Public labor leaders who have been pressuring the state to reduce its controversial pension investments in hedge funds on Wednesday failed in their attempt to force a drastic cutback in such alternative investments. The State Investment Council that manages the public pension fund investments split 7-7 on a move to slash the stake in hedge funds from about 12 percent of the total investment portfolio to less than 4 percent. The board is comprised of public employee union and gubernatorial appointees, and all but one labor representative voted for the rollback. So contentious was the action that Guy Haselmann, managing director at OpenDoor Trading and a member of the investment council, threatened to resign if the council slashed these investments, which he said would violate his responsibility to the fund.

New Jersey's public pension fund supports the retirement of hundreds of thousands of retired and active workers and has been on the decline, falling from $79 billion at the end of June to $70.9 billion at the end of March. The investments have lost 2.14 percent in the current fiscal year that began in June and returned 0.88 percent this calendar year.  The fund paid out $400 million in management fees and $328.4 million in performance bonuses for its alternative investments, which make up about a third of the total portfolio. The Division of Investment is considering a 24 percent reduction in its hedge fund allocation next year, which would take it down to about 9 percent of the total fund. And it is exploring lower cost hedge fund strategies that charge reduced or no incentive fees, Director Christopher McDonough said. 

Objecting to that plan, Chairman Tom Byrne, president of Byrne Asset Management and son of former Gov. Brandan Byrne, asked Liebtag to wait until staff could come back with a "fully baked plan" rather than forcing them into "piecemeal decision-making" that doesn't address where to put the money. Byrne and Haselmann said they could support a cut in hedge funds if it was fully vetted and proven to make sense as part of a total investment strategy. "If our consultants come back with numbers that show ... that this might result in lower returns and increased risk, is there some view as to how much degradation in projected return you would be willing to tolerate in order to achieve this 4 percent target?" Byrne said.


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