On Thursday, New Jersey state lawmakers held a hearing on the state pension’s decade-long push into alternative investments, and whether the fees paid to private equity and other private fund managers are paying off.
For the past 11 years, New Jersey’s $81 billion pension fund has been increasing its exposure to the alternatives space under the watch of former Democratic governor Jon Corzine, a Wall Street veteran rumored to be in the preliminary stages of launching a hedge fund in recent months.
“Today, $3 out of every $10 in our pension system is invested in hedge funds, private equity, real estate or other alternatives,” said in a statement Bob Gordon, chairman of the senate legislative oversight committee holding the hearing. “It is time that we engage in an honest assessment of where New Jersey stands relative to other large pension systems and determine if these investments are truly worth the fees.”
The hearing, held 10:30 am Thursday morning, reportedly accepted testimony from pension fund trustees, academics and financial experts, as well as New Jersey State Investment Council chairman Tom Byrne and Chris McDonough, the director of the state treasury’s Division of Investment, both of whom argue the fees and bonuses paid to alternative investment managers are justified on the basis of net returns.
The state’s buyout and venture capital holdings were the best performing segment of the pension fund’s performance last fiscal year, returning 26.25 percent to help boost the overall funds’ return to 16.9 percent, according to the State Investment Council’s 2014 annual report.
The hearing comes amid an ongoing investigation by the state’s Public Employees Retirement System Board of Trustees and the Police and Firemen’s Retirement System, who have criticized the amount of fees and bonuses paid to private fund managers. The state paid roughly $600 million in fees and bonuses to outside money managers last fiscal year.
Following his induction as head of the New Jersey State Investment Council earlier this year, Byrne has spoken out in favor of offering the public more information on private equity fees paid by the pension.
Byrne, who also runs asset management firm Byrne Asset Management, is committed to becoming “more granular” in the pension’s reporting, a decision he said he arrived at after looking through prior annual reports. “I want to take the next step and break down fees as much as makes sense so that people can understand why certain costs are incurred,” said Byrne in a call with pfm.