NJ Pension Officials Defend Alts, But May Look to Lower Cost Strategies in 2016

Officials at New Jersey’s pension system defended the performance of the system’s alternative investments at a board meeting on Wednesday.

But the same officials also indicated interested in driving fees lower in 2016, whether through renegotiating fees with external managers or bringing more investment management in-house.

The system paid $600 million in fees in 2014. Last year’s total is not yet calculated.

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The stakes in private equity, hedge funds and other investment firms produced results that beat the pension system’s assumed rate of return over the last five years, even when fees paid to private fund managers that some have criticized as excessive were accounted for, a report compiled by Aon Hewitt showed.

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Pension-system officials yesterday defended their overall alternative-investment strategy, pointing to the numbers compiled by Aon Hewitt that showed the investments have produced 9.2 percent net returns over the last five years. That beats the pension system’s assumed rate of return of 7.9 percent, and the overall 7.3 percent rate of return the system experienced during the same five-year period.

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But Christopher McDonough, director of the Division of Investment, which oversees the management of the pension system on a daily basis, also outlined goals for the agency for 2016 that included a review of alternative-investment fees that could be renegotiated down. Exploring whether some asset management could be brought back within the 65-employee division is another goal, he said.

“We recognize the importance of minimizing fees and costs,” McDonough said. “We’re looking at lower-cost strategies.”

New Jersey’s public pension system manages $71 billion in assets.

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