Official: State underestimated scope of crisis

In Uncategorized on November 25, 2008 at 12:21 pm

Monday, November 24, 2008


The state official in charge of New Jersey’s hemorrhaging employee pension fund tried his best today to explain how the fund lost $16 billion over the last three months.

William Clark, director of the New Jersey Division of Investment, conceded state analysts underestimated the scope and speed of the collapse of the financial markets, but said losses actually could have been worse.

A move in 2005 to allow alternative investments saved as much as $2 billion, he said.

“I think we positioned the portfolio appropriately to try and minimize the losses,” he told the state Senate Budget and Appropriations Committee this morning.

Clark’s appearance before the committee came less than a week after pension fund managers reported losses of $9 billion in October. The fund, which supports benefits for government workers, police officers, firefighters and teachers, was down a total of $16 billion over the last three months.

The losses don’t affect the monthly pension checks that are sent to state retirees and their beneficiaries — about 240,000 — but taxpayers would be on the hook for bigger payments in the future if the fund performance doesn’t turn around.

Clark stressed that the pension losses come as the stock market and other investment opportunities are experiencing across-the-board failures. He said now is not the time to try “time-the-market” strategies instead of a long-term approach.

“In general, I don’t think we believe we should abandon the course,” he said. “We think diversification makes sense.”

Still, some legislators grilled Clark, asking why the state invested $180 million in failed Lehman Brothers earlier this year, taking a $115 million loss.

“We are alarmed when issues like that come up,” said state Sen. Kevin O’Toole, R-Cedar Grove.

Clark called it a poor investment and said the state may sue to recover damages.

“It’s something we’re looking at very, very seriously,” he said.

He also said some administrative changes would be made to make the state’s investment decisions more transparent.

But state Sen. Steve Sweeney, D-Gloucester, said the blame for the pension system’s poor condition — it has an estimated $28 billion unfunded liability at last count — should go to the previous legislators who allowed past governors to enact pension payment holidays when the stock market was more healthy.

“If we’re looking to find who the bad guy is here it’s the Legislature,” Sweeney said.

E-mail: reitmeyer@northjersey.com


  1. The entire world underesttmated the scope of the crises.

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