As reported by nj.com, 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 are not 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 Governor 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 abut 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.

Alternative investments, and hedge funds specifically, have been a matter of disagreement between union leaders who say the assets don’t pull their weight or warrant the high fees charged by managers, and investment representatives, who argue they provide a safety net in market downturns.  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.

Tags: Governor Christie, NJ Fire, NJ Pension Crisis, NJ Police, Pension and Benefit Reform, pension benefits, pension investments, PERS, PFRS, SPRS
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Photo of Donald C. Barbati Donald C. Barbati

Donald C. Barbati is a shareholder of Crivelli, Barbati & DeRose, L.L.C. His primary practice revolves around the representation of numerous public employee labor unions in various capacities to include contract negotiation, unfair labor practice litigation, contract grievance arbitration, and other diverse issues…

Donald C. Barbati is a shareholder of Crivelli, Barbati & DeRose, L.L.C. His primary practice revolves around the representation of numerous public employee labor unions in various capacities to include contract negotiation, unfair labor practice litigation, contract grievance arbitration, and other diverse issues litigated before the courts and administrative tribunals throughout the State of New Jersey. In addition, Mr. Barbati also routinely represents individuals in various types of public pension appeals, real estate transactions, and general litigation matters. He is a frequent contributor to the New Jersey Public Safety Officers Law Blog, a free legal publication designed to keep New Jersey public safety officers up-to-date and informed about legal issues pertinent to their profession. During his years of practice, Mr. Barbati has established a reputation for achieving favorable results for his clients in a cost-efficient manner.

Mr. Barbati has also handled numerous novel legal issues while representing New Jersey Public Safety Officers. Most notably, he served as lead counsel for the Appellants in the published case In re Rodriguez, 423 N.J. Super. 440 (App. Div. 2011). In that case, Mr. Barbati successfully argued on behalf of the Appellants, thereby overturning the Attorney General’s denial of counsel to two prison guards in a civil rights suit arising from an inmate assault. In the process, the Court clarified the standard to be utilized by the Attorney General in assessing whether a public employee is entitled to legal representation and mandated that reliance must be placed on up-to-date information.

Prior to becoming a practicing attorney, Mr. Barbati served as a judicial law clerk to the Honorable Linda R. Feinberg, Assignment Judge of the Superior Court of New Jersey, Mercer Vicinage. During his clerkship Mr. Barbati handled numerous complex and novel substantive and procedural issues arising from complaints in lieu of prerogative writs, orders to show cause, and motion practice. These include appeals from decisions by planning and zoning boards and local government bodies, bidding challenges under the Local Public Contract Law, Open Public Records Act requests, the taking of private property under the eminent domain statute, and election law disputes. In addition, Mr. Barbati, as a certified mediator, mediated many small claims disputes in the Special Civil Part.

Mr. Barbati received a Bachelor of Arts degree in history, magna cum laude, from Rider University in Lawrenceville, New Jersey. Upon graduating, Mr. Barbati attended Widener University School of Law in Wilmington, Delaware. In 2007, he received his juris doctorate, magna cum laude, graduating in the top five percent of his class. During law school, Mr. Barbati interned for the Honorable Joseph E. Irenas, Senior United States District Court Judge for the District of New Jersey in Camden, New Jersey, assisting on various constitutional, employment, and Third Circuit Court of Appeals litigation, including numerous civil rights, social security, and immigration cases.

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