NJ Pension Votes to Launch Forensic Audit of Investment Expenses


The Board of the New Jersey Public Employees Retirement System voted on Wednesday to launch a forensic audit of the investment expenses it pays to outside money managers.

The vote comes in the wake of an identical decision by the state’s Police and Firemen’s Retirement System.

The trustees of both funds are worried the fund is over-paying; but members of the State Investment Council defended the use of outside managers.

From NJ.com:

The heads of New Jersey’s largest pension funds, skeptical of the hundreds of millions of dollars in investment fees and bonuses paid to private companies, say they plan to launch a probe into how the state awards those fees.


Fees and bonuses for the pension fund’s investments hit a high last year. The state spent roughly $265 million on management fees and expenses and $335 million on performance bonuses, which are referred to as “performance allocation” in a State Investment Council annual report.

“Why are we paying that kind of money?” said Wayne Hall, chairman of the PFRS Board of Trustees. “When I see the exorbitant fees the state has been paying for the last couple of years, I have to question that.”


State investment officials have said the shift out of fixed-income securities and into alternatives has paid off.

In the fiscal year that began July 1, 2013, and ended halfway through last year, the pension investments earned 16.9 percent.

Members of the State Investment Council that oversees the fund and state officials have defended the fees, which they say beat industry norms, and bonuses.

“I know there’s some distrust of the fees we pay these people,” Tom Byrne, chairman of the State Investment Council, has said. “But just by putting smart managers in some places you can add a lot of value… We have been producing returns well ahead of what was established, and the investment results have made the pension fund billions healthier.”

New Jersey’s pension systems have significantly increased its allocation to alternative asset classes since 2010: allocations to hedge funds, private equity and real estate have all doubled in that time-frame, according to annual reports.

New Jersey handles much of its money management in-house, but alternative investments are usually handled by outside managers.


Photo by TaxRebate.org.uk

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