New Jersey investment officials have directed increasingly large slices of state pension money into riskier investments, such as hedge funds, touting their strategy as a means of limiting exposure to a volatile stock market. They’ve argued that their approach would maximize overall returns and justify the higher fees paid to Wall Street money managers.
But 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.
Since Gov. Chris Christie took office, he has nearly tripled the amount of retiree cash invested in alternative investment firms – many of whose employees have made financial contributions to political groups backing Christie’s election campaigns. In that time, the gap between New Jersey’s alternative portfolio and the broader market has rapidly expanded, costing taxpayers billions in unrealized returns and threatening the financial stability of the $78 billion pension system. The state’s pension funding shortfalls – which have been exacerbated by Christie’s market-trailing investment strategy – were one of the factors cited by Fitch Ratings in its decision last week to downgrade the state’s bond rating for the second time.
This post was published at David Stockmans Contra Corner on September 8, 2014.
Follow on Twitter
Recent Comments