David Sirota | Pension360

New Jersey Blocks Public Release of Pension Pay-to-Play Investigation

In 2011, politician and businessman Charlie Baker made a $10,000 contribution to the New Jersey Republican State Committee. At the time, he was a partner at General Catalyst, a venture capital firm.

Months later, New Jersey’s pension system gave a contract to General Catalyst to manage the state’s pension money.

After the potential conflict of interest was uncovered by journalist David Sirota, New Jersey launched an investigation into the situation.

But the state is now refusing to release the findings of the investigation. From David Sirota:

Christie officials have denied an open records request for the findings of the investigation.

In a reply to International Business Times’ request for the findings of the audit under New Jersey’s Open Public Records Act, Christie’s Treasury Department said the request is being denied on the grounds that the documents in question are “consultative and deliberative material.” Despite officials’ assurances in May that the probe would take only weeks, the New Jersey Treasury said in September that the investigation is still “ongoing” — a designation the department says lets it stop the records from being released.

IBTimes is appealing the open-records denial to the state’s Government Records Council. Neither Baker nor Christie responded to requests for comment on the issue.

General Catalyst and Baker have denied that Baker had anything to do with persuading Christie officials to invest in the firm. To try to verify that assertion, IBTimes filed a separate request for any General Catalyst documents sent to the New Jersey Department of Treasury prior to its investment. Those documents would show whether General Catalyst specifically promoted Baker’s involvement in the firm when pitching its investment to New Jersey.

Christie officials are pushing back the due date to release those documents to Nov. 6 — two days after the election.

New Jersey has fallen into a habit recently of denying public records requests. From the International Business Times:

The denial letters to IBTimes come only weeks after the Associated Press documented a spike in the number of open records requests that have been rejected by Christie officials. Since 2012, Christie’s administration has paid out $441,000 in taxpayer funds to reimburse open-records plaintiffs who were unlawfully denied access to government records.

“Open records requests to the executive branch have become even more highly politicized than usual,” said Walter Leurs, president of the New Jersey Foundation for Open Government. “These documents are subject to the open records laws and they are supposed to be disclosed within seven days, so this is stonewalling. They know that any lawsuit challenging the denials wouldn’t be heard for 60 days — which is well after the election.”

Charlie Baker has denied he worked for General Catalyst when New Jersey decided to give the firm a contract. But the firm’s website listed him as a partner, and Baker himself called himself a partner in documentation related to his $10,000 contribution back in 2011.

Documents Shed New Light on Alleged Conflicts of Interest In New Jersey Pension System

Gov. Chris Christie has shielded his state’s pension system in recent weeks from allegations of conflicts of interest by asserting one thing: the State Investment Board doesn’t have input in pension investment decisions, it only loosely oversees them.

But new documents obtained by the International Business Times suggest that the Council does have an active hand in guiding pension money.

David Sirota writes:

The minutes of the State Investment Council (which Christie appoints, and whose official mission is to “formulate policies governing the investment of [state] funds”), show his appointees not only oversee the state’s due diligence reviews of specific managers but also offer guidance to New Jersey Treasury Department officials about managers. Christie appointees at times cast votes on specific investments and have spearheaded the recruitment and subsequent appointment of the official who runs the state’s Division of Investment.

According to minutes of the State Investment Council, most of New Jersey’s investments in private equity, hedge funds, venture capital and other so-called alternative investments are reviewed by Christie appointees on the Investment Policy Committee (a subcommittee of the State Investment Council). Typically, the minutes show State Investment Council Chairman Robert Grady reports the committee “discussed the investment and was satisfied that the due diligence that was performed was adequate and appropriate.”

Grady was appointed to the council by Christie. He also serves as the Chairman of the Governor’s Council of Economic Advisers, and state documents show he was in regular contact with Christie administration and campaign officials. The governor has described him as a longtime friend.

The State Investment Council debates the merits of specific investments in open session, offering advice to Department of Treasury staffers about the specific money manager being given a New Jersey pension contract. Because the council has influence over the selection of specific managers, Grady and another Christie appointee, real estate investor Jeffrey Oram, have recused themselves from deliberations that involve managers to whom they might have a financial connection.

The documents also reveal a few examples of members explicitly voting to approve (or disapprove) big investments with money managers. From the report:

– On Dec. 8, 2011, Grady spearheaded a proposal to invest as much as $1.8 billion of New Jersey money in the Blackstone Group. State records show “a motion was made by Chair Grady to approve the Blackstone investments,” the motion “was seconded by Council Member Oram,” and the investment in Blackstone was subsequently approved on a 7-2 vote. As IBTimes previously reported, Grady’s private firm was investing in one of the same Blackstone funds though Grady did not disclose that at the time of the vote.

– On July 21, 2011, the council voted on a quarter-billion-dollar investment in Blackstone Resources Select Fund. After a debate, the council voted against a motion to halt the investment.

– On June 11, 2011, the council voted to approve a financial maneuver to facilitate a specific transaction with a firm called RLJ Lodging Trust.

In addition to overseeing and voting on specific investments, Christie appointees oversee the appointment of the state official who runs the state’s Division of Investment.

Christie yesterday offered his first extensive defense against conflict of interest allegations.

Photo by Truthout.org via Flickr CC License

Christie Dismisses Conflict of Interest, Pay-to-Play Allegations as “Garbage”

Journalist David Sirota has written a series of reports since over the last five months detailing the possible conflicts of interest and pay-to-play violations under the surface of the New Jersey pension system.

On Monday, Christie gave his first extended response to the allegations and denied them categorically. From Politicker NJ:

“There’s no appointed people in my administration that make those decisions,” Christie responded when asked about the allegations, reiterating an earlier defense of his administration and brushing off the accusations as innaccurate. “Those decisions are all made by folks in the Department of Treasury who are career employees. And the appointed folks on the pension board, both Republicans and Democrats, don’t make decisions about individual investments.”
[…]

“So all of those are just factually incorrect,” Christie said. “Nobody in my office had any input or discussion in any way with anybody from Treasury or the pension board for that matter about how we invest our pension funds.”

He also said “nobody should be complaining” when it comes to the state’s pension fund, lately burdened with millions in underfunded liabilities, given a high rate of anticipated returns– 7.9 percent — on the fund’s investments.

“And over my fours years as governor we’ve made 12 million over the 7.9 percent,” he added. “So the investments have gone very well.”

A major New Jersey union filed an ethics complaint against the pension system earlier this summer. The union said in the complain that the chairman of the State Investment Council “violated the Division’s own rules barring politics in the selection and retention of such funds and investments, and has further created an appearance of impropriety.”

Report: New Jersey Pension Investments Trailed S&P 500 For Seven of Last Eight Years

New Jersey's investment returns vs. the S&P 500 CREDIT: IB Times — New Jersey’s investment returns vs. the S&P 500
CREDIT: IB Times

Last week, journalist David Sirota reported on the New Jersey pension system and its drastic shift towards hedge fund investments under Chris Christie.

This week, Sirota has analyzed the state’s financial records. His finding: despite the increased allocation toward hedge funds and other alternatives, the pension system has mostly underperformed relative to the broader market.

Sirota writes:

In seven of the eight years since the state began shifting pension funds into so-called alternative investments, returns have fallen well short of the broader stock market, an analysis of state financial records shows. In those seven years, New Jersey’s alternative investment portfolio has produced gains of just more than half of the S&P 500, the widely watched index seen as a proxy for shares of large corporations.

[…]

The below-market results from the state’s $20 billion alternative investment portfolio belie repeated assurances from New Jersey officials who said the investments would overperform the stock market. Instead, the results buttress arguments by investors like Warren Buffett and some local lawmakers, who assert that pension money should be invested in stock index funds rather than hedge funds, private equity, venture capital, real estate and other alternative investments.

Christie has responded to the fund’s under-performance by claiming that, although it has under-performed the broader market, it has beaten the fund’s internal projections.

Does Rhode Island’s Pension Fund Performance Justify Its Fees?

David Sirota is shining more light on the Rhode Island pension system’s investment returns—and fees—under Treasurer Gina Raimondo. According to his reporting, the combination of fees and “below-median” returns are costing the state’s taxpayers. From Sirota:

According to four years’ worth of state financial records, Rhode Island’s pension system has delivered an average 12 percent return during Raimondo’s tenure as general treasurer. That rate of return significantly trails the median rate of return for pension systems of similarly size across the country, based on data provided to the International Business Times by the Wilshire Trust Universe Comparison Service.

Meanwhile, the pension investment strategy that Raimondo began putting in place in 2011 has delivered big fees to Wall Street firms. The one-two punch of below-median returns and higher fees has cost Rhode Island taxpayers hundreds of millions of dollars, according to pension analysts.

Under Raimondo’s watch, the state’s pension fund has adopted an investment strategy that heavily utilizes private equity, hedge fund and venture capital investments. The New York Times reported that those alternative investments constitute almost a quarter of the fund’s assets. Sirota writes:

The high fees associated with those alternative investments — costing Rhode Island $70 million in the 2013 fiscal year alone, the Providence Journal reported — are supposed to buy above-average investment performance. However, according to pension consultant Chris Tobe, the gap between Rhode Island and the median, a gap to which the fees contributed, means the state effectively lost $372 million in unrealized returns.

By way of comparison, $372 million represents more than one-half of the entire annual budget of the state’s largest city, Providence. In all, had Rhode Island’s pension system merely performed at the median for pension systems of similar size, the state would have 5 percent more assets in its $7.5 billion retirement system.

Raimondo’s office defends the investment decisions. A spokesperson told Sirota that the strategy needs to be judged over a longer timeline to more accurately assess its effectiveness.

New Jersey Is Still Waiting For Return on Hedge Fund Investments

New Jersey Pension Returns — CREDIT: International Business Times

New Jersey is one of the most active states in the country when it comes to investing pension fund assets in hedge funds. That strategy carries risks and boatloads of fees—but it also carries potentially big returns.

Journalist David Sirota investigated the state’s investment decisions and the corresponding return data. He found that New Jersey was certainly straddled with management fees.

But the promised returns have not yet materialized. From Sirota:

Between fiscal year 2011 and 2014, the state’s pension trailed the median returns for similarly sized public pension systems throughout the country, according to data from the financial analysis firm, Wilshire Associates. That below-median performance has cost New Jersey taxpayers billions in unrealized gains and has left the pension system on shaky ground.

Meanwhile, New Jersey is now paying a quarter-billion dollars in additional annual fees to Wall Street firms — many of whose employees have financially supported Republican groups backing Christie’s reelection campaign.

Neither Christie nor the state pension fund’s top investment official responded to Sirota’s requests for comment. But to a certain extent, the numbers speak for themselves. Here’s a chart of the state’s management fees since 2009: