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Gordon, Weinberg Back Call for Cost-Benefit Analysis of Alternative Pension Investments

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Senators call for State Investment Council to immediately approve forensic audit requested by Board of Trustees of NJ Public Employees’ Retirement System


TRENTON – Senator Bob Gordon and Senate Majority Leader Loretta Weinberg (both D-Bergen) today urged the State Investment Council to immediately approve a full cost-benefit analysis and forensic audit of the state’s growing investment in hedge funds and private equity, and the management and performance fees paid to Wall Street to manage those investments.

The senators noted that Thomas Bruno, chairman of the state Public Employees’ Retirement System Board of Trustees, testified before the Senate Legislative Oversight Committee last month that state officials had failed to comply with the PERS Board’s request.

“Testimony before the Senate Legislative Oversight Committee raised legitimate questions about whether the state is getting real value for the $600 million in performance and management fees paid last year to Wall Street to manage hedge funds and other alternative investments,” said Gordon, who chairs the committee. “That testimony makes the PERS Board’s request for a full  audit particularly timely and important.”

“I see no reason for the State Investment Council not to go ahead with the requested audit,” said Weinberg, who serves on the Legislative Oversight Committee. “With the state’s pension system so severely underfunded, we need confirmation of whether the state’s shift into alternative investments has truly provided a hedge against steeper losses in down markets or if the state could have achieved similar results at less cost through other investment strategies.”

Gordon and Weinberg sent a letter to the State Investment Council endorsing PERS Chairman Thomas Bruno’s call for an independent audit of the state’s alternative investments.

Gordon pointed out that Jeffrey Hooke, a financial analyst hired by the New Jersey State AFL-CIO, produced a study showing that New Jersey’s pension system would have made $2.4 billion more through stock indexing or $600 million more simply by putting the money into the state’s traditional stock and bond mix than it made through its investment in hedge funds over the past five years.

An analysis released today by Hedge Clippers, a coalition of New Jersey and New York-based community action groups, reached a similar conclusion, asserting that hedge fund investments have dragged down New Jersey’s total investment return by $1.27 billion since 2007, Weinberg noted.