NJ Wins Alternative Investments Challenge

August 25, 2008 (PLANSPONSOR.com) - A state appeals court has rejected a claim that state laws limit New Jersey's public pension investments to traditional holdings like stock.

The Newark Star-Ledger reported that the court approved New Jersey’s decision to invest $9 billion of public pension assets in hedge funds and other alternative investments, saying such holdings are allowed by state law. The allocation had been challenged by the Communications Workers of America and the New Jersey Education Association, which claimed the new investments are overly risky and raise the potential for political abuses.

However, the appeals court ruled the unions were correct in their claim that state law does not allow the Division of Investment to hire private managers to select stocks. Tom Vincz, a spokesman for the state Treasury Department, said the state has hired nine outside managers and is consulting its lawyers regarding the status of the management deals, according to the news report.

The state’s pension accounts lost almost $3 billion, or 3.1%, last year, with stocks alone down 10.38%, the Division reported. The Star-Ledger said Division Director William Clark claimed the fund’s overall loss would have been double the actual decline if funds had not been shifted out of stocks into the alternative holdings back in 2005.

New Jersey earlier this year made another controversial investment strategy decision – that its $80-billion pension plan will take equity positions in both Citigroup and Merrill Lynch & Co., both suffering mightily from their subprime mortgage holdings (See Garden State Pension Plans Take Citi, Merrill Equity Stakes ).