As reported by app.com, New Jersey officials continued to move the State’s $71.6 billion pension fund into more aggressive, and riskier, investments, as returns have missed their targets for a decade. The decisions included putting $100 million into a private equity fund run by a big fundraiser for President Barack Obama.
State Investment Council Chairman Robert Grady contends the changes will not only provide better returns, but also make the overall pension portfolio safer by making it less subject to increasing interest rates or stock market swings. Union representatives on the council are opposed and prefer the State stick with a traditional mix of stock and bonds. The council voted 8-3 to take another step toward allowing the State’s money managers to invest more than a third, up to 38%, of the pension funds in so-called alternative investments: private equity, hedge funds, real estate, and commodities. The policy is expected to be approved in May.
Some unions, particularly Communications Workers of America Local 1033 representing rank and file state workers, have fought the effort to change the State’s investment strategy and said the State is taking undue risk with the money. The State faces a collective $53.8 billion unfunded liability in the pension fund over the next 30 years. Governor Chris Christie and Senate President Stephen Sweeney are both proposing sweeping changes to the pension system in an effort to reduce payouts.
The pension funds had gained an average of some 3 percent a year for the past 10 years as stocks swooned in 2001 and the recent financial crisis torpedoed investments broadly. The state pension system is constructed with the expectation that investments would earn 8.25 percent a year. Timothy Walsh, director of the Division of Investment, noted that the state’s pension funds were up just over 15 percent through the first eight months of the fiscal year that began in July, led by outsized gains in the U.S. stock market. Investment officials said the State had made $435 million from private equity firms in the past three months, and they expected greater gains in the months ahead.