New Jersey's $70 Billion Pension Fund Is Negotiating Fee Cut From Managers

New Jersey’s $70.2 billion pension fund for teachers and government workers is negotiating reductions in fees and expenses for private managers after paying $125 million last year, said Timothy Walsh, director of the Division of Investment.

The state is seeking new terms at the same time it’s proposing to increase the share of its holdings that can be placed in privately managed assets, such as hedge funds, to 38 percent from 28 percent, according to testimony at a State Investment Council meeting today.

The 13th largest U.S. pension fund, according to its website, hopes to work out a lower fee structure by year end, Walsh said in an interview after the meeting.

“We went through a period when general partners were in great demand,” said Robert Grady, chairman of the council, which sets policy for the fund. “The pendulum has swung a bit back to the limited partners. I think it’s perfectly appropriate and responsible for New Jersey and other states to negotiate the best terms they can.”

The California Public Employees’ Retirement System, the biggest public pension in the U.S., negotiated a $50 million cut in fees from CIM Group LP, a Los Angeles real-estate investment manager, according to an announcement yesterday.

Management Fees

New Jersey pays most of its private partners 2 percent management fees and a 20 percent share of gains, state records show.

The fund had about 14 percent of its assets in privately managed alternative investments, according to a report presented to the State Investment Council today. The council voted to raise the maximum allowable allocation in alternatives to 38 percent from 28 percent.

The pension fund gained 8.3 percent for the fiscal first quarter ended Sept. 30, according to the director’s report. The fund’s $70.2 billion value is the highest in two years, according to state records and the report.

For September, the fund realized investment gains of 4.2 percent. U.S. equities returned 9.4 percent, international stocks gained 9.3 percent and domestic fixed income was down 0.14 percent, according to the report.

“The world markets could be characterized for September with two words, ‘nervous ebullience,’” the report said. “On the two-year anniversary of the start of the world equity and credit market crash, the S&P 500 had its best September since 1939.”

The state Treasury’s Investment Division manages money for seven pension plans, which provide benefits to 728,000 working and retired teachers, police officers and government employees.

Through June 30, 2009, actuaries calculated the pension system was underfunded by $46 billion. It had 66 percent of the assets needed to fund promised benefits, according to data compiled by Bloomberg.

To contact the reporter on this story: Dunstan McNichol in Trenton, New Jersey, at

To contact the editor responsible for this story: Mark Tannenbaum at

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