Christie Vetoes Fee Transparency Bill; Cites Competitive Disadvantage and Potential Costs

Chris Christie on Monday vetoed a bill that would have tightened rules around the disclosure of fees paid by the state’s pension system to investment managers.

Lawmakers had been crafting the bill for months in an attempt to increase the level of transparency around New Jersey’s pension investments.

But Christie opposed the bill, arguing that it could dissuade the best managers from working with the pension fund. That would result in lower returns, which would increase the state’s pension costs.

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Christie’s late-afternoon conditional veto struck a blow to lawmakers’ efforts to enhance the disclosure of the fees that are paid to the managers of hedge funds, venture-capital, and other private-equity firms when they are hired to handle the investment of a portion of the state’s roughly $80 billion public-employee pension system.

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Lawmakers have questioned whether the state is getting the best value by using the outside fund managers when impressive gains could potentially be realized using just in-house staff. Enhanced reporting of the fee arrangements would help demonstrate if the outside investments are worth it, they argued in support of the bill.

Christie, in his veto message, said though he generally agrees with the idea of disclosure, the bill would make New Jersey an outlier and put it at a competitive disadvantage. He recommended annual disclosure instead of the every few months of reporting called for in the bill.

“Many of the premiere fund managers may elect not to continue a relationship with the State if their confidential fee arrangements will be made public,” Christie said. “Any resultant loss of diversity in the fund manager pool will lead to suboptimal returns.”

New Jersey’s pension system has $80 billion of assets under management. It paid $600 million in management fees in 2014, but returns net-of-fees beat the fund’s assumed rate of return of 7.9 percent.

Photo by Bob Jagendorf from Manalapan, NJ, USA (NJ Governor Chris Christie) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons