NJ Pensions to Possibly Invest in Hedge Funds

Posted at March 16, 2010

According to a memo prepared for a meeting later this week of the State Investment Council, New Jersey’s $67 billion pension fund may be seeking to increase its investments in hedge funds to insulate against losses in the stock market, Bloomberg reports. The Investment Division manages funds for the state’s seven pension funds, which provide benefits to about 800,000 working and retired teachers, police officers and government employees. Reasons for the Investment Council’s decision to divert funds from the stock market to hedge funds might include recent figures from its latest monthly report: The worst economic crisis since the 1930s helped push down the pension fund’s annual returns to 2.47 percent over the past 10 years, from a target of 8.25 percent.

The council, it should be noted, is chaired by Orin Kramer, general partner of the New York-based hedge fund Boston Provident Partners.

The Bloomberg article reported that actuarial reports released earlier this month showed that through June 30, 2009, the New Jersey pension system was underfunded by $46 billion, with the assets on hand worth less than half the cost of the benefits already owed to members.

In the March 12 memo, Ray Joseph, acting director of the New Jersey Treasury’s Investment Division, said,

The objective of this plan is to continue to improve the fund’s overall diversification and to allow the division to achieve its long-term return objectives during today’s low-yield environment with less reliance on traditional public equities.

Joseph went on to say,

We believe the markets will present compelling investment opportunities in many sectors of the alternative investment environment and would like greater flexibility to pursue these opportunities over the long term.

Other members of the Council declined to comment.

Under the plan, holdings in domestic and international stocks, which now account for 47 percent of the state’s portfolio, would be reduced.

Currently, the S.I.C., which manages the fund, can only invest up to 28 percent of its assets into hedge funds, FINalternatives noted. The investment council is set to vote on the proposal at a March 18 meeting in New Brunswick, New Jersey.

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