The $1.5 billion in fees the state of New Jersey paid to Wall Street pension fund managers over the past five years was an unwise use of taxpayer money, concludes a nationally known investment expert who analyzed pension investment returns and fund management fees.
The independent report by finance and investment expert Jeff Hooke of Maryland was released Thursday at a Senate Legislative Oversight hearing examining New Jersey’s increased investment in hedge funds and equity funds and the 300 percent increase in management fees paid to Wall Street firms since 2010 to manage those investments.
“On behalf of middle-class families and retirees, we are more alarmed every day about the continuing assault on workers’ pensions by a governor who is violating his own landmark law to fully fund the pension system,” said Charles Wowkanech, president of the New Jersey State AFL-CIO. “This is Robin Hood in reverse – taking retirement money from police officers and firefighters, teachers and public employees in order to reward Wall Street financiers.”
The fees – $600 million last year alone – paid mostly to hedge fund and equity fund managers, did not improve the fund’s below-average performance or beat well-established performance benchmarks, Hooke’s research shows. If the fund had stayed with the S&P 500 instead of private equity and a 60-40 stock/bond mix instead of hedge funds, the fund would have made an extra $2.4 billion.
“The fund’s commitment to alternatives hasn’t worked out well,” concludes Hooke.
Adam Liebtag, vice chairman of the State Investment Council, the New Jersey State AFL-CIO’s representative on the council and president of CWA Local 1036, said, “the staff at the Division of Investment managed 74 percent of the pension fund at 1/60th the cost of fees paid to outside hedge funds and alternative investment managers, so we have to wonder, are the large hedge fund fees really justified by the returns? With an average pension benefit of under $30,000 for public workers, the only people getting rich off the New Jersey pension system are hedge fund managers reaping lucrative management fees and performance bonuses totaling more than $600 million in last fiscal year alone.”
Tom Bruno, chairman of the Public Employee Retirement System, who has called for an independent audit of alternative investments, said: “The elected trustees have the fiduciary responsibility to protect the integrity of the pension fund, but little authority to do so as evidenced by the administration's stonewalling tactics to date. It's frustrating.”
Hooke, who earned an MBA from The Wharton School, is a nationally recognized expert on pension funds, author and former investment banker. A consultant to the New Jersey State AFL-CIO, he was among those to testify before the committee, chaired by Sen. Bob Gordon (D-38).
The full report is available by CLICKING HERE.