Expanded Pay-to-Play Rules Could Hurt Pension Investments, Says New Jersey Investment Chairman

In February, Pension360 covered a bill passed by New Jersey lawmakers that would expand pay-to-play rules as they relate to pension investments.

The measure is timely, as several of the state’s pension investments have come under ethical scrutiny in recent months.

Philly.com summarized the bill:

[The bill] would expand restrictions on investments of state pension funds with outside money managers who donate to national political committees.

The legislation also would require the state Treasury Department to regularly publish reports disclosing fees paid to private managers who invest state pension funds.

The measure still sits on Christie’s desk, waiting to be signed or vetoed.

In the meantime, some pension officials have had a chance to ruminate on the implications of the bill.

This week, the chairman of the New Jersey State Investment Council – the entity that approves pension investments – said expanded pay-to-play rules could harm the fund’s investment portfolio.

Tom Byrne told NJ.com:

Tom Byrne, who was elected chairman of the board overseeing the state’s $77 billion in pension funds at the start of the meeting, said the rule change, which would expand pay-to-play rules, is ill-advised.

[…]

“We might have to not only liquidate assets that have helped us outperform our 7.9 percent (expected rate of return), but we might have to get out of some of these things at disadvantageous prices,” Byrne said after the meeting. “If you’re a forced seller, that’s not so great.”

Byrne, a former chairman of the Democratic State Committee, said he’s made that case to some lawmakers and wouldn’t expect the Legislature would attempt to an override if Christie vetoes it.

Other officials have made the case that the bill’s fee disclosure requirement would run the risk of dissuading some investment managers from doing business with the fund.

But lawmakers believe the current SEC rules are too lenient, and the state has been rife with pay-to-play controversy for the last 5 months.