NJ Pension Fund Negotiating Asset Manager Fee Cuts

October 22, 2010 (PLANSPONSOR.com) - New Jersey’s $70.2-billion state public pension fund is negotiating reductions in fees and expenses for private managers after paying $125 million last year, said Timothy Walsh, director of the Division of Investment, according to Bloomberg.

The news report said the state is seeking new terms at the same time it’s proposing to increase the share of its holdings that can be placed in privately managed assets, such as hedge funds, to 38% from 28%, according to testimony at a State Investment Council meeting.  

New Jersey pays most of its private partners 2% management fees and a 20% share of gains, state records show. The fund had about 14% of its assets in privately managed alternative investments, according to a report presented to the State Investment Council.   

According to the news report, the state Treasury’s Investment Division manages money for seven pension plans, which provide benefits to 728,000 working and retired teachers, police officers and government employees. Through June 30, 2009, actuaries calculated the pension system was underfunded by $46 billion. It had 66% of the assets needed to fund promised benefits, according to data compiled by Bloomberg.   

Walsh said the fund hopes to work out a lower fee structure by year end.  

“We went through a period when general partners were in great demand,” said Robert Grady, chairman of the council, which sets policy for the fund, according to Bloomberg. “The pendulum has swung a bit back to the limited partners. I think it’s perfectly appropriate and responsible for New Jersey and other states to negotiate the best terms they can.”   

The California Public Employees’ Retirement System (CalPERS) recently announced lower fees were part of a renegotiated agreement with CIM Group, a real-estate investment manager (see CalPERS and CIM Group Renew Relationship).