New Jersey pension investments

Timothy Geithner To Speak at New Jersey Pension Meeting

Ex-U.S. Secretary of Treasury Timothy Geithner will speak at Thursday’s meeting of the New Jersey State Investment Council, the entity that oversees the state’s pension investments.

From NJ.com:

Geithner is president of private equity firm Warburg Pincus, which counts New Jersey as a client.

“It’s an important relationship for them, and it’s certainly an important relationship for us,” said Tom Byrne, vice chairman of the investment council.

Watchdogs are hoping the meeting will also mark the release of a long-awaited audit into the potential pay-to-play violations of Charlie Baker.

From NJ.com:

Seven months before the state decided to invest $15 million from its pension fund with the firm General Catalyst, which listed Baker as an “entrepreneur in residence,” Baker had donated $10,000 to the New Jersey Republican Senate Committee. The state has since sold its investment with the firm.

The results of the audit have been delayed for months. The investment council announced the audit in May, saying it was expected to take several weeks.

The meeting agenda can be read here.

Chart: New Jersey Pension Turns In Below-Median Performance

Over the last decade, New Jersey’s pension investments have out-performed those of similar public pension fund. But in more recent years, New Jersey’s performance has fallen off. Although its returns have climbed into double-digits, it hasn’t kept pace with its peers.

Here’s a closer look at the New Jersey’s pension returns over the last four years:

2012 was a down year for nearly every pension fund. But New Jersey managed to perform better than its peers on that occasion. Otherwise, the last four years have been marked by under-performance.

Chart 1 credit: New Jersey Treasury Department

Chart 2 credit: International Business Times

New Jersey Senate Moves To Tighten Pension Pay-to-Play Rules

A New Jersey Senate committee on Thursday approved a bill that would broaden the state’s pay-to-play rules regarding pension investments.

The bill intends to further strip out politics from pension investments: the new rules would prohibit the state’s pension fund from investing in firms that have recently made donations to national political groups.

Reported by NorthJersey.com:

The legislation would broaden the New Jersey conflict of interest restrictions that apply to the pension system to cover national party committees and organizations like the Democratic Governors Association and the Republican Governors Association, an agency that’s being led this year by Governor Christie.

The measure, sponsored by Sen. Shirley Turner, D-Mercer, passed the Senate State Government, Wagering, Tourism and Historic Preservation Committee by a 3-1 vote.

That vote came just weeks after the state Division of Investment, which manages the $80 billion pension system, decided to sell its stake in a venture capital fund with ties to a Massachusetts gubernatorial candidate who donated to the New Jersey GOP. The state Department of Treasury is also in the midst of an internal audit of the investment to determine whether state regulations were violated.

But labor union officials in New Jersey have also questioned other political donations made by investment firms that have been hired by the Division of Investment to manage state pension funds, including several to the Republican National Committee and the Republican Governors Association. Both organizations supported Christie’s successful bid for a second term last year, but are not covered by current state law.

Right now, the Division of Investment regulations bar the agency from investing pension funds in a firm only when the fund management professionals have made contributions to New Jersey candidates and political committees within a two-year period.

Any hint of politics and political favoritism should be kept away from the public employees’ pension funds, Turner said.

“The method of investment should be selected based on performance and merit, not because of campaign contributions,” she said.

The bill would also require the State Investment Council, which oversees the Division of Investment, to provide quarterly reports to the Legislature disclosing the fees being that are paid to the investment management firms. Treasury right now does not list those fees on its website as other states do and requires an Open Public Records Act request, which can be a lengthy process, be filed to obtain the information.

“It’s not their money, nor does it belong to any governor or any other political figure,” Turner said.

The Senate drew up the bill after an uproar caused, at least in part, by a recent series of articles by journalist David Sirota about conflicts of interest within the State Investment Council.

Photo by Truthout.org via Flickr CC License

Union Files Ethics Complaint Over New Jersey Pension Investments

New Jersey’s largest union, New Jersey AFL-CIO, has filed an ethics complaint with the state regarding the entity that oversees the state’s pension investments – the State Investment Council – and the man that chairs the Council – Robert Grady.

The union alleges that politics have played a large role in the state’s pension investments, which have increasingly included hedge funds and other alternative investments.

From NJ.com:

In an 11-page letter to the ethics commission, New Jersey AFL-CIO President Charles Wowkanech said that the chair of the State Investment Council, Robert Grady, “has 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.”

At issue is the state’s investment of hundreds of millions of dollars of pension money with Wall Street firms, including hedge funds and other types of “alternative investments” that charge higher fees than more traditional types of investments — a practice that started before Christie was governor but has increased under him.

Some “key executives” of the firms donated to state and national Republican organizations that helped Christie, according to Wowkanech, who said those donations potentially broke state pay-to-play laws, and at the least violated the state officials’ code of ethics. Wowkanech wants an investigation.

The complaint is based on a series of reports on the websites Pando Daily and International Business Times, written by the reporter David Sirota, that explain the pension fund’s increase in alternative investments since Christie took office.

The complaint also takes issue with Grady’s involvement with Chrisite’s re-election campaign as an adviser, in close contact with Christie and top staffers, while he was leading the council.

“It should not be seen as mere coincidence that the reports show Robert Grady was listed as a required attendee on a series of regular weekly phone conference calls held by high-level staff on the Governor’s re-election committee in or around September 2013,” Wowkanech’s letter reads.

The Christie administration and the state treasury department have responded to the complaint, according to the Associated Press:

Christie spokesman Kevin Roberts calls the filing “a cheap political stunt based on shoddy, distorted reporting.”

Christopher Santarelli, a spokeswoman for the state treasury department, said it is state employees who decide who will manage pension fund money, not the investment council.

He also said that the state’s use of alternative investments including hedge funds and bank plans is in line with peers. He said the strategy helped minimize losses in 2008 and 2009, when stock prices fell sharply.

Grady did not immediately return a message from The Associated Press, but he previously said in an email to the International Business Times that he was cleared by the state treasury department’s ethics officer before he participated as a policy adviser to Christie’s re-election campaign. He says that no pension investment decisions were discussed with campaign officials.

The Associated Press wasn’t able to contact Grady. But Grady has previously stated that pension investment decisions had nothing to do with campaign politics.

Photo by Truthout.org via Flickr CC License