NJ Considering Participation in Legacy Securities Program

April 7, 2009 (PLANSPONSOR.com) - New Jersey is contemplating participation in the Treasury's Public-Private Investment Program for Legacy Assets in an attempt to undo the damage caused by the troubled financial markets.

The Bergen Record reports that Bill Clark, director of the state’s Division of Investment, was among officials from at least 15 states who discussed the proposal with FDIC chairwoman Sheila Bair on Friday. Orin Kramer, chairman of the New Jersey State Investment Council, who helped coordinate the meeting, said Governor Jon Corzine believes the program could provide a lucrative opportunity for New Jersey’s pension fund.

The program, unveiled by the U.S. Treasury in March (see Treasury Attempts to Restart Legacy Securities Market ), would provide federal funding to form public-private partnerships that would buy up “legacy assets,” including commercial and residential mortgages and securities. The goal of the program is to reduce the bad assets on the balance sheets of banks and free them to lend more.

In a statement, Corzine’s spokesman Robert Corrales said the meeting was a “good opportunity” for federal officials and states to develop a plan to involve pension funds “without having to accept the traditional fee structure charged by private sector managers to invest in these types of assets,” according to the Bergen Record.

The latest available valuation report for the state pension fund, dated February 27, 2009, listed the total value at $56.3 billion, down $3 billion from the report released at the end of January. Last year, the fund was valued at more than $80 billion.

In addition, the news report said an actuarial report released by the state Department of Treasury on Thursday indicated the state teachers’ pension fund is funded at only about 70% of its liabilities, as of June 30, 2008, the end of the last fiscal year.

Present at the midday meeting were pension officials from New York City, New York State and Connecticut, and representatives of 12 other states, including Pennsylvania, California and Florida, participated in the meeting by phone, Kramer said.

He reported that Bair is open to the states’ participation, but the details need to be worked out.