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2016 Investment Returns for Public-Employee Pension Up 7% , Much Better Than In 20015

Friday, January 27, 2017   (0 Comments)
Share | 01/27/17

The board that oversees New Jersey’s beleaguered public-employee pension system received some good news yesterday as new figures showed overall investment returns finished ahead by about 7 percent last year. While those returns didn’t live up to the 7.9 percent assumption that’s set in state law for the pension system, they marked a significant improvement over the year before, when investments generated less than 1 percent returns. The new calendar-year figures also suggested a much better outlook for the pension system — which is deep in debt thanks to years of underfunding by the state — after figures released last year for the 2016 fiscal year showed negative returns for the first time in nearly a decade.

The full dive into the 2016 calendar-year investment returns took place yesterday during a public meeting of the State Investment Council, the board that sets policy for the $72 billion pension system. State officials said the improvement largely occurred during the second part of 2016, with areas like equity and real estate leading the way after a poor start that included plummeting energy prices. They also released new figures for alternative investments like hedge funds and private equity that showed a slight increase in fees but an overall reduction in other costs like bonuses for performance.

The employer pension contributions on a quarterly basis, set to begin in the 2017 fiscal year, should help generate better long-term investment returns by getting more money into the system earlier in the fiscal year since full years with negative returns are generally rare. In all, the pension system saw returns totaling 7.09 percent in 2016, up from the 0.64 percent measured the year before, according to the figures released during the yesterday’s meeting. The turnaround was even more impressive compared to the 2016 fiscal year returns, which came in 0.93 percent in the red. 

Christopher McDonough, director of the state Division of Investment, the agency that manages the pension system on a daily basis, chalked up the improvement to “a strong finish to the calendar year over the last couple of months,” reversing what had been a horrible start to the year. And while the new figures for alternative investments showed that fees went up slightly, from $415.6 million to $417 million, during the 2016 fiscal year, they also showed overall expenses for the alternative investments, which included bonuses known as performance allocations, dropped from $744 million to $659 million

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