Fees to Wall Street, Low-Performing Hedge Fund Investments Significantly Cut After Union-Led Campaign


After a year-long campaign, labor unions succeeded in achieving the largest reductions in Wall Street fees and hedge fund investments in the history of the New Jersey pension fund. The State Investment Council unanimously approved these changes on Wednesday, August 3, 2016. The decision will reduce the plan’s hedge fund allocation by more than half from the current 12.5% to 6% in FY17. The decision will also address a long-standing concern from pension beneficiaries by reducing the total alternative investment allocation from 32% to 26% of the pension fund. The New Jersey State AFL-CIO and union representatives on the panel have worked aggressively, for over a year, to achieve today’s results and were proud to receive support of administration representatives after a compromise was struck.

“The old saying is that if both sides aren’t completely happy, then it’s a good compromise.  With this in mind, I’m glad both labor representatives and administration representatives have come together to significantly cut hedge funds and reduce the outrageous level of Wall Street compensation that are negatively impacting our pension portfolio,” said New Jersey State AFL-CIO President Wowkanech.  “However, even with today’s action by the SIC, New Jersey is still over invested in hedge funds when compared to the average of all states and additional reforms must be acted upon.  But for today, this is a significant move in the right direction,” Wowkanech concluded.

Despite the Wall Street sales pitch, hedge funds are just as likely as not to outperform the market, but consistently charge high management fees that can significantly reduce the growth potential of the state pension fund over time.

The Division of Investment estimates that with the changes made today, state pension fund exposure to hedge funds will be reduced by $3 billion, saving the pension fund more than $120 million in fees in FY17 alone. However, this savings still represents a small percentage of the $728 million in fees paid to private fund managers in FY15, according to an annual report of the pension investments.

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