NJ Turns to Hedge Funds to Overcome Pension Deficit

January 27, 2006 (PLANSPONSOR.com) - The New Jersey state employee pension fund will begin investing in hedge funds as part of its effort to overcome a $30 billion deficit.

Bloomberg reports that state documents show that the pension fund will give a total of $300 million to four hedge fund firms.   The $72 billion fund invested only in stocks and bonds until last year, when the board committed to putting at least $9 million into alternative investments such as private-equity investments, real estate, and hedge funds.

The move to alternative investments was a source of debate between the two gubernatorial candidates last year (See  NJ Gov Candidates Battle over Pension Issues ).

The New Jersey fund follows the California Public Employees’ Retirement System and Pennsylvania’s state system in turning to hedge funds to boost returns.   Hedge Fund Research Inc. in Chicago says these investments have helped hedge fund assets more than double since 2000, according to Bloomberg. The fund has already made its first private-equity and real estate investments.

The additional potential returns from the new investments are sorely needed, officials said. A task force for the state said in a December report that New Jersey must add $12.1 billion to the fund now to avoid future shortfalls.