A report made public last week calls on the New Jersey Department of the Treasury Division of Investment to make changes that include venturing into private equity.
The report, as expected, has stirred up controversy among state leaders and local unions over management of the Garden State’s $62 billion pension funds. Besides suggesting alternative investments, the report, issued by Independent Fiduciary Services (IFS), supports bringing in outside investment management. The New Jersey pensions are completely invested in stocks and bonds and managed in-house.
Later this week, the report’s authors will officially present this report and answer questions from the State Investment Council, an overseer of state investments. Before it was even made public, the report stirred up political wrangling among New Jersey State Treasurer John McCormac and Investment Council Chairman Orin Kramer, as well as Local 1033 of the Communication Workers of America (CWA), which represents investors. Local 1033 has been lobbying political leaders and other labor unions to oppose plans to privatize investment management. Union officials say that any pension investment privatization efforts would be a boon to corruption and that the state’s losses do not merit the change.
While all sides agree that investment diversification would help the pensions, union leaders are concerned over the problems associated with some alternative investments, particularly in real estate.
The CWA has been vocal in its opposition to the prospect of using private investment managers to invest state pension money. State officials say privatization reforms are needed to bring New Jersey in line with other states and recover losses.
The Treasurer’s office responded cautiously to the report. “The state will be looking at the recommendations in their entirety,” says Tom Vincz, communications director for the New Jersey Department of Treasury. “It’s helpful to recognize that we have taken steps already.”
The department announced in August that it was looking to hire a full time investment consultant. Vincz says he expects the hiring to happen by the end of the year.
McCormac announced last year that the Treasury would seek the recommendations of outside auditor IFS. The firm was hired and a report expected in six months. According to sources close to the union, the Treasurer’s office sent the original report back for not being worded strongly enough in favor of privatization. However, Vincz says that the delay in the report’s completion came from the normal exchange of information between the Treasury and IFS.
Treasurer McCormac says that New Jersey’s losses to its pension funds have been greater than other states’. He says that the state’s pension funds, owing largely to big losses in the stock market, dropped from a value of $83 billion in June 2000 to $60 billion by August 2002.
However, the union disputes McCormac’s claim that New Jersey faired significantly worse than its counterparts and says that New Jersey, in fact, ranks among the top pension programs nationwide in terms of low cost to taxpayers.
Email Matthew Sheahan