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Here's the article I think I'm referring to...|
This article appeared almost four years ago in the New York Times. I believe that it details examples of pension funds floating bonds to gamble in the equities and derivatives markets.
Pension Funds In New Jersey Face Shortfall
July 26, 2002, Friday
By LAURA MANSNERUS (NYT); Metropolitan Desk
Late Edition - Final, Section B, Page 1, Column 5, 1044 words
DISPLAYING FIRST 50 OF 1044 WORDS -Just as New Jersey has patched up its worst fiscal mess ever, the state is staring at another: next year an enormous payment for its shrinking pension funds will come due. The total will approach $1 billion, by the estimates of some state officials and consultants, most of it...
This article below appeared about a year ago and shows (marked in red ink) that New Jersey lost $20 billion gambling in the technology markets when the crash of 2000 hit.
State and local pension funds rely heavily upon equities markets to meet their pension obligations.
November 9, 2004
Plan to Shift New Jersey Pension Funds Approved
By MARY WILLIAMS WALSH
he governing council for New Jersey's state pension fund voted yesterday to shift to a much more aggressive investment strategy that would include hedge funds and other so-called alternative investments as part of a broader plan to give some responsibility for investing the fund to outside money managers.
Until now, New Jersey's $66 billion pension fund - one of the nation's largest - has been managed by state employees, who have kept it solely in stocks and bonds. Most state and corporate pension funds assign at least part of their assets to outside managers, and many use other investment classes.
But two unions that represent state employees oppose turning over control of investments to Wall Street managers, arguing that the state employees have done a satisfactory job and that the changes would not only cost more but also bring more risk. They said that they would challenge yesterday's action in court.
Like most pension funds, New Jersey's fund suffered big losses after the crash of technology stocks in 2000. The state had lost more than $20 billion by 2002, according to reports at the time, which prompted questions about why the state was still doing its own money management.
Proponents of the new investment proposal say it could help the pension fund recover the losses more quickly and reduce the impact of stock crashes.
"We're not meeting our fiduciary responsibility by having an undiversified portfolio," said the state treasurer, John E. McCormac, in a telephone interview after the vote.
Mr. McCormac acknowledged that outside professionals would cost more, but he said the state had no capacity on staff to invest in the three new investment classes he anticipates: hedge funds, real estate and nontraded stocks that are known as private equities.
At its regular monthly meeting yesterday, the 11-member New Jersey Investment Council voted 7 to 2 in favor of the shift, with two members absent.
The resolution called for New Jersey to move 13 percent of the pension fund's assets into the three alternative categories over the next five to seven years.
The two votes against the resolution were cast by representatives of New Jersey's pension funds for teachers and for general public employees. The other members include five appointees of the governor, one appointee of the State Legislature, and three representatives of New Jersey's pension funds for police and firefighters. One police pension representative and one person appointed by the governor were absent.
At today's value of $66 billion for the New Jersey pension fund, the new investment policy would mean about $8.6 billion in new business for money managers. That, in turn, could mean at least $86 million in revenue for those selected, said Rae Roeder of the Communications Workers of America, which represents some of New Jersey's public employees, including those in the unit of the state treasury that now handles pension investing.
Ms. Roeder said she was basing that projection on an assumption that the professionals would charge fees of 1 percent of the assets under their management. In fact, money managers in esoteric asset classes would be likely to charge more, she contended.
Ms. Roeder predicted that Wall Street professionals would be so eager to get a piece of this business that they would find ways to curry favor with the state's decision makers, possibly including campaign donations or other payment. But Orin S. Kramer, a hedge fund manager and chairman of the Investment Council, said the state had already set up stiff safeguards against such influence peddling.
The investment of public pension money in alternative instruments has been challenged in other places besides New Jersey. Hedge funds are considered a questionable pension investment because they can be volatile. In cases where hedge fund managers took on more risk than they fully understood-as with Long-Term Capital Management-the results have sometimes been disastrous.
For that reason, most pension funds that invest in hedge funds limit themselves to small portions of their portfolios, typically less than 3 percent of total assets, according to survey data by Greenwich Associates, a research and consulting group that follows pension funds.
Private equities, meanwhile, have raised concerns because they are not subject to the same disclosure requirements as publicly traded stocks and are therefore difficult for taxpayers or pensioners to track. In some states, including California and Texas, the news media have successfully sued to make public pension funds disclose the returns of their private equities investors.
The Communications Workers and another union, the New Jersey Education Association, which represents teachers, have each filed lawsuits in state court, seeking to prevent the change in pension policy.
Steven Baker, a spokesman for the teachers' union, said it filed suit last summer arguing that the state does not have the authority to turn over the investing to private money managers. But the suit cannot be heard by the courts until the state takes some steps to exercise its authority like the hiring of an asset manager who is not a state employee.
He said yesterday that the teachers' union was now trying to determine whether the Investment Council's vote was such a trigger event.
Ms. Roeder of the Communications Workers said her union would continue to pursue its own lawsuit, which was filed in New Jersey Superior Court in October. She also said the union would continue to demonstrate in front of the statehouse. In addition, she said, a group of retirees was contemplating its own lawsuit against the new policy.
[ Last edited by matt605 at 2006-3-5 06:00 AM ]