NJ Fund Takes Steps to Curb 'Pay to Play' Arrangements

August 19, 2004 (PLANSPONSOR.com) - The New Jersey State Investment Council has approved new rules prohibiting the state's pension fund from utilizing the services of any fund management company or its employees that made political donations to any incumbent or candidate for state office in the past two years.

Money managers could also face blacklisting if they solicited someone else, such as a lawyer or family member, to make a donation.   To track political donation activity, the investment council said asset managers wanting to do business with the $70 billion pension fund would have to disclose quarterly statements showing any political donations, according to a Newark Star-Ledger report.

Orin Kramer, chairman of the investment council, called the donation rules “by a great measure the strongest campaign finance reform that has ever been enacted by any state,” according to the Star-Ledger report.   The plan had been stalled by New Jersey Governor James McGreevey.

The new rules came as the council considered changing its policy to allow the employment of outside advisors and also a plan to put more than 10% of its in assets into alternative investments.   New Jersey’s pension fund – one of the few managed strictly by employees of the state – has seen its share of troubles. Over the last few years, the fund has experienced losses of $26 billion, which eventually led to the resignation of the chief investment officer (See  Jersey Pension Chief Quits, Gets New Assignment ).  Also, the fund ranked as one of the five worst performers last year according to a Reuters survey (See  Study: Public Pension Funds Shedding Underperforming Managers ).  Last year, as a result of severe underfunding, New Jersey was required to make a $735 million contribution over a five-year period.

New Jersey’s retirement assets are recovering, though; as of December 31, 2003, the overall value of the New Jersey funds had grown back to $66.9 billion.