Report: Wall Street Execs Pocket $728M in Fees from State Pension Funds in FY15

Compensation Skyrockets Despite Outperformance By In-House Managers for the Past 5 Years

The New Jersey State Investment Council quietly released the final version of the 2015 annual report last week, and it confirms that investments in New Jersey’s pension system are benefitting Wall Street fund managers in astounding numbers: The pension funds paid a record $728 million in investment management fees and bonuses to outside firms in the fiscal year ending June 30, 2015. In FY15, fees swallowed almost 20% of the fund’s investment income (i.e., investment return, gross of fees, was 5.1%, and fees were 0.9%, with net investment return being just 4.2%).

“It’s outrageous that Wall Street millionaires are becoming Wall Street billionaires at the expense of middle-class workers and retirees,” said Charles Wowkanech, president of the New Jersey State AFL-CIO. “New Jersey’s retired public workers receive a $26,000 per year pension on average, so the only people getting rich off our pension system are the managers reaping obscene fees and bonuses.”

Jeff Hooke, a national finance and investment expert who has analyzed New Jersey’s pension system and compared it to the other 49 states, says: “The enormity of this year’s number is disappointing, given that the fund does not outperform its peer group. Ironically, these outside managers are unable to provide the risk-adjusted returns promised. Simple public indexes, like 60% stocks/40% bonds, often beat them.  Furthermore, in-house New Jersey fund employees, who are compensated at a fraction of the cost of their Wall Street counterparts, have shown the skills to match outside professionals.”

Here’s the breakdown: The pension system paid $701 million in alternate investment fees and $27 million in fees for public emerging market stocks and junk bonds managed by outside money managers, for a total of $728 million to manage less than one-third of the portfolio, according to the report. Conversely, the pension system paid just $16 million in in-house costs and consultants to manage the majority (70 percent) of the investment portfolio.

Gov. Christie claims there is no money to fund pensions, but there is apparently plenty of money to reward Wall Street managers for generating sub-par returns. The New Jersey State AFL-CIO calls on the State Investment Council and the Legislature to take immediate action: Minimize this exorbitant level of Wall Street compensation by devoting a larger portion of the fund’s investment to in-house management and to public index management.

View the full report here.

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