NJ Pension’s Investment Policy Stalled As Trustees Deadlock Over Hedge Fund Allocation

New Jersey’s public pension system will go at least the first few months of the new fiscal year without an updated investment policy, as trustees are split over whether to cap hedge fund investments at 4 percent.

This doesn’t mean investments will stop being made and monitored; but it does mean that the fund will be using last year’s investment policy as guidance.

In-house investment staff recommended a 9 percent hedge fund allocation to the board, down from 12 percent last year.

But several union-affiliated trustees are pushing for a 4 percent cap.

From NJ Spotlight:

The disagreement over the hedge funds broke out in full force during the council’s public meeting in Trenton last month as the investment plan for the 2017 fiscal year came up for a discussion.

In-house managers from the state Division of Investment had recommended scaling back hedge-fund stakes from 12.5 percent to 9 percent of total investments. They said they were also readjusting the hedge-fund portfolio to favor those with far lower fees than the standard 2 percent charged for managing the investments and as much as 20 percent taken from all profits.

Adam Liebtag, an AFL-CIO labor-organization representative on the council, made a motion to instead cap hedge-fund investments at 4 percent during the next fiscal year. When his motion resulted in a tie vote among the 14 members in attendance, that stalled the overall advancement of the broader 2017 investment plan.

Although there was talk of setting up a special meeting to help resolve the differences before July 1, officials from the Department of Treasury confirmed yesterday that no meeting will occur and that the pension system will instead break from tradition and start the new fiscal year operating under the same asset-allocation plan that’s been in place for the 2016 fiscal year.

It’s unclear when the pension system last entered a new fiscal year without a new investment plan in effect, but Treasury spokesman Joseph Perone yesterday downplayed the impact it would have on the broader investment strategy. He said many other states set investment targets for more than just one year. “Therefore, whether we set the targets in June or August is not a big issue,” Perone said.