Last week, the Asbury Park Press editorial board published a column critical of New Jersey’s pension fund management, particularly its investment expenses and investment performance.
[Read the column here.]
On Friday, the pension fund defended itself.
Joseph R. Perone of the state Department of the Treasury – the entity that manages pension assets – penned a column combating allegations that the pension fund pays outsized fees to Wall Street for below-median returns.
Perone writes:
A recent cost analysis shows that the division’s costs are approximately 25 percent below its peers. This is saving New Jersey roughly $100 million a year in management fees compared to the average cost for similarly sized plans.
Among large public pension funds, New Jersey’s returns have been in line with the median for the last three fiscal years. For longer periods, New Jersey has produced returns above the median (45th percentile for six years and 27th percentile for seven years). Performance has been even stronger when factoring in risk and volatility.
The Sharpe Ratio, which measures risk-adjusted performance, ranks New Jersey in the first quartile among its peers for most periods. The Wilshire Trust Universe Comparison Service has found that New Jersey’s returns had a lower volatility (lower standard deviation) than 85 percent of other public pension plans.
New Jersey’s pension fund returned 7.27 percent in 2014, which falls short of the assumed rate of 7.9 percent.
Photo by TaxCredits.net
The assets held by America’s state pension plans are the ultimate prize in the financial world.
The dollar value of the assets, representing the hard work of the taxpayers and public employees, represent the largest inflow of money to Wall Street. The public pension plans are largely unprotected from the cunning and sophisticated money professionals that profit from the continuous investments and the resulting fees and associated cost.
The standards for plan governance and accounting practices are at best ineffective and at worst a cruel joke. State plans seem to love benchmarking against the mediocre and the obscure. They are ingenious at promoting their successes in public and hiding their failures behind walls of self-created confidentiality. The plans, with their handpicked bits of self-promoting information, proclaim to an unsuspecting public that they are excellent investors and stewards.
The incestuous nature of the financial industry is such that the pension plan staff, consultants, advisors, vendors, marketers and other “hangers on” benefit greatly from more money flowing to Wall Street. Simply put, the financial professionals (and bureaucrats) floating in that transfer of wealth have a vested interest in increasing the river of money headed for their industry
It seems a rising tide does float all boats, especially if your boat is moored in Manhattan.
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