Pension chief vows to map investments

In Uncategorized on November 25, 2008 at 12:18 pm

Amid legislators’ flak over losses, director promises transparency


Tuesday, November 25, 2008
Star-Ledger Staff

Under fire from lawmakers who criticized their actions as too secretive, managers of New Jersey’s pension fund will now disclose any emergency investments immediately, even if they fall below the $50 million threshold for public review, officials said yesterday.

The change comes after three such deals were not revealed in October, sparking frustration at the Statehouse as the financial crisis focused a bigger spotlight on the embattled pension fund.

During wide-ranging testimony that also touched on an ill-fated Lehman Brothers investment, state pension director William Clark told the Senate Budget Committee he would increase transparency on future deals.

Clark said he and his staff will still be able to make such investments without prior review by the state investment council — which is required for investments of more than $50 million — but will make them public right away on the state website, rather than waiting for the next monthly council meeting.

He also defended the state’s controversial strategy of alternative investments, which allows the pension fund to buy into hedge funds, private equity and real estate as well as stocks and bonds. The pension system covers 700,000 public workers and teachers.

The strategy came under fire at the hearing.

“I believe firmly that the alternative investment program has gone too far, too fast,” said Jim Marketti, who represents the AFL-CIO on the investment council.

The pension fund, which started the year worth $81.3 billion, has lost $23 billion in value amid the markets’ collapse.

But Clark said that without the alternative investments, the fund could have lost about $2 billion more. He said hedge funds are down 20 percent this fiscal year, compared to 37 percent for the U.S. stock market.

“We’re not making the argument that hedge funds are no risk, we’re making the argument they’re lower risk,” Clark said.

Last month, the state put $49.5 million apiece into three hedge funds: Canyon Special Opportunities Fund, GoldenTree Credit Opportunities Fund and the BlackRock Inc.-managed Credit Investors Co-Investment Fund. The state initially invested in the funds in September 2007, with $100 million for each. He said they needed the new infusions quickly to protect New Jersey’s existing investments, and to create the potential for lucrative returns.

“There was no attempt to hide anything here,” he said.

But prominent lawmakers, including Senate President Richard Codey (D-Essex), said the $49.5 million figure sent up a red flag.

“On its face, the infusion of capital just below the threshold amount raises the specter of an opaque, secretive process,” said committee chairwoman Barbara Buono.

Afterward, Buono (D-Middlesex) said she needed time to evaluate the step announced by Clark before deciding whether the new disclosure goes far enough.

“I believe that we have to give the division enough discretion to be able to do their job effectively, but you have to balance it against the need for transparency,” she said.

Republicans on the panel zeroed in on the state’s June investment in Lehman Brothers, the bank that has since filed for bankruptcy. New Jersey lost $115.5 million on a $180 million Lehman stake in less than four months.

Sens. Steven Oroho (R-Sussex) and Kevin O’Toole (R-Essex) asked whether there was a conflict of interest, since two members of the investment council were Lehman employees and one member was a former Lehman employee at the time of the investment.

Clark said the division made the decision to invest in Lehman without council input and there was no conflict. He said the state will soon decide on whether to sue Lehman officials to recoup some of its losses. “Obviously, I wish we had that one back,” he said.

Gov. Jon Corzine said he believes the pension investments “were made entirely on merit” and not personal relationships.

Staff writer Tom Hester contributed to this report.



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