NJ Investment Council Told to Increase Use of Alternatives

September 17, 2010 (PLANSPONSOR.com) - Consultants told the New Jersey State Investment Council that the state’s pension funds should put more money in alternative investments such as private equity and real estate to boost returns and protect against stock losses.

Bloomberg reports that Strategic Investment Solutions Inc. recommended allowing as much as 43% of assets to be placed in alternatives, but the Council voted to draft regulations that would allow as much as 38% of the $68.3 billion fund to be invested in alternatives. The current maximum is 28%. 

The consultant said New Jersey’s current limit on alternatives is the 18th- lowest among the 21 largest U.S. state pension funds. It claimed the fund would realize an additional 30 to 50 basis points of investment gain annually, or anywhere from $210 million to $350 million, with “modestly higher risk,” according to the news report.    

The panel authorized alternative investments in 2002 and had about $9.8 billion, or 14% of its portfolio, through August 31, according to a monthly investment report. Strategic Investment said the council has approved alternatives allocations totaling 19% of the 28% allowed.   

Over the past 10 years, the fund has earned a 3% annualized return, compared to the 8.25% actuaries assume the fund will gain when they determine the system’s funding adequacy, Bloomberg said.  

New Jersey Governor Chris Christie recently unveiled a sweeping reform program to address the funds’ $46-billion shortfall (see NJ’s Christie Proposes Sweeping Pension Changes).  

Recent research shows a significant increase in the percentage of private pension portfolios investing in alternatives (see More DB Plans Using Alternative Investments).