$1 Billion In Fees for Alternative Investments In NJ Pension

New Jersey, unlike Pennsylvania and other states, has not been filing public reports listing fees paid to its private investment management contractors who invest billions for the state pension system. To obtain this interesting and useful information, Joseph N. DiStefano at philly.com made a request in July under the state Open and Public Records Act for all fees paid those managers for 2008-13 and he got a story out of it which included a spreadsheet that got more interesting once it was put into EXCEL format that showed:

My Questions on General Catalyst Partners

The New Jersey State Investment Council (SIC) held their monthly meeting yesterday (as covered by NJTV) and the focus was on one particular venture capital investment and whether it was made for political reasons:
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But in looking through available information on General Catalyst Partners other questions pop up:

Christie Shorting NJ Pension by $3.8 Billion?

The story first appeared in the International Business Times (IBT) with lots of charts under the screaming headline:

Gov. Christie Shifted Pension Cash to Wall Street, Costing New Jersey Taxpayers $3.8 Billion

Today it was picked up by AOL, Esquire, and Daily Kos all using the angle that Christie wants to take money from retirees barely scrimping by so he can give it to his Wall Street friends who then donate to political campaigns of his choosing.  But is that the real story?

How Actuaries Betray Detroit Retirees

My guess is that as early as this week 20,000 retirees in Detroit’s two retirement systems will have their pensions reduced by a flat percentage (25%) with a cap ($50,000 annually?) and no reductions for de minimus amounts (under $10,000 annually?) so that part of the pension trust fund can be used to repay bondholders.

The Detroit Free Press editorialized today against any benefit cuts since retirees were not to blame but failed to finger any culprit.  I will.

Are Public Pensions Lying About Assets Too?

Public pension systems are understating the value of liabilities for benefits accruing in their plans primarily by using ridiculously high investment assumptions resulting, in the case of New Jersey, in reported liabilities of $124 billion when they really are $186 billion ($214 billion if COLAs return).  But there seems to be chicanery on the asset side of the ledger as well – aside from using a fictional ‘actuarial’ value that always seems to be higher than the market value.

In today’s New York Times there is a story about South Carolina’s retirement system investing half of its money in alternative investments on the recommendation of their former investment chief, a civil servant who made half-a-million dollars a year, drove a Lamborghini, and didn’t put a lot in his calendar.   I looked at the latest valuation report for the South Carolina plan and…….

Missing Alternatives on New Jersey Pensions

The New Jersey State Investment Council, which sets pension policy, recently raised the cap to 38 percent from 28 percent on how much pension money can be invested in hedge funds, private equity and other so-called alternative investments.  According to an opinion piece by Rutgers associate professor John M. Longo:

One doesn’t need a doctorate’s degree in finance to realize that the roughly $54 billion deficit in New Jersey’s pension fund obligations is unsustainable. The fund is headed towards a path of insolvency.

In order to get the problem under control, there are two broad options: expense or benefit reduction, or return enhancement.

That Professor Longo has limited us to these “two broad options” is the very reason that the New Jersey state pension plan will go bankrupt.