Friday, July 21, 2006

Privatize State Pensions

From the Star Ledger:

State acts to 'privatize' pension funds

State officials yesterday adopted a plan to shift billions of dollars in state pension money to private investment managers and set a course to reduce the funds' heavy reliance on the stock market.

"What we are doing today arguably constitutes the most extensive readjustment of any pension program in any state in a single year," said Orin Kramer, chairman of New Jersey's State Investment Council and an architect of the new strategy. The council, a volunteer board that manages the pension funds, approved the move 7-1.

The sweeping changes in the $72.6 billion fund will cut the state's U.S. stock holdings by more than $16 billion in favor of larger holdings in toll roads, hedge funds and international stocks. The pension funds bankroll retirement pay for hundreds of thousands of teachers, police officers, firefighters and public employees.

Separately, the strategy will shift $18 billion of the portfolio's holdings into the hands of private managers, who are expected to earn fees of about $221 million a year for managing the state's funds.
...
The new strategy will generate a windfall for professional money managers, who are slated to collect about $221 million annually when the new investment plan is in place. Currently, the state pays about $6 million a year in administrative costs to the in-house staff that manages the stock portfolio.

13 Comments:

Anonymous Anonymous said...

So, who gets the kick back on this?
SAS

7/21/2006 06:59:00 AM  
Anonymous Anonymous said...

The sinking ship has just left port, at least it's empty or will be soon as the money managers take there fees. Hard to believe how far down NJ has fallen in the last twenty years.

7/21/2006 07:11:00 AM  
Blogger BergenBuyer said...

I got a great idea, hire a competent investment council. Maybe pay some more $ in house to get better talent instead of paying $221M to someone else. NJ sucks. If I didn't grow up here and all of my friends and family didn't live here I'd consider moving.

7/21/2006 08:27:00 AM  
Anonymous Anonymous said...

this is so beyond... spend $221 million to save $6 million... as pointed out in a previous post, why not just keep it in-house and hire new talent... from a purely budget point, that $215 million extra that the state is spending is equal to about 30 years of in-house spending budgets... all i can say is wow.

7/21/2006 08:38:00 AM  
Anonymous Anonymous said...

Now this is a major screw up.

In order to justify the fees the new managers will have to improve the ROI on the $18 billion by 12 percent.

I don't care if Warren Buffet comes in to manage this, that's not going to happen.

There is no way to justify this move.

Lindsey

7/21/2006 09:12:00 AM  
Anonymous Anonymous said...

north carolina here i come... we're becoming the laughing stock of the nation in regards to fiscal responsibility.

NJ Slogan:
"Welcome to New Jersey; Don't Forget to Bend Over"

7/21/2006 10:37:00 AM  
Blogger chicagofinance said...

"State officials yesterday adopted a plan to shift billions of dollars in state pension money to private investment managers and set a course to reduce the funds' heavy reliance on the stock market."

Personally, I don't see how the new plan addresses this objective.

At the end of the day, this is a PENSION PLAN with large FIXED FUTURE LIABILITIES. I don't see how hedge funds, international [?] stocks and ownership stakes in Toll Roads [proven money losers] will be of any value.

I did not see the words Bonds or Fixed Income in there.

Another bailout will be forthcoming.

Welcome to the jungle.

7/21/2006 11:13:00 AM  
Blogger Space Ghost said...

The $6 Million for current costs may be an understatement since it may only take state employees (who do allocation) costs into account and not the actual cost of fund management, which is probably done by outside firms.

And while I agree that the fees do look a little excessive, some of them are probably going into products like hedge funds, VC funds, LBO funds and the like which normally do pay huge fees to managers. Still $221 M does seem excessive even for those type of funds for managing $18B. Maybe $100M would be OK.

CF --- this is only part of the portfolio. 75% is probably still in conventional investments, which include Fixed Income investments.

On the whole, this is not a bad idea and many other pension funds like CalPers already invest in such instruments.

Still, the cost does seem excessive, the shift should be done slowly over at least a decade and the pension fund trustees should be independent.

7/21/2006 01:28:00 PM  
Blogger Space Ghost said...


north carolina here i come... we're becoming the laughing stock of the nation in regards to fiscal responsibility.


If half of the people (largely anons) who claim they're going to move to NC on this board actually did that, the board would lose much of its traffic.

7/21/2006 01:29:00 PM  
Anonymous Anonymous said...

I've reviewed many posting on this
blog.

Seems to me if you have a question
just ask Space Ghost or Lindsey,

They seem to have all the answers,
just ask the question.

Libs,,, my word. and they support
Lorreta.

7/21/2006 02:04:00 PM  
Blogger Space Ghost said...


Libs,,, my word. and they support
Lorreta.


I don't even know who Lorreta is.

7/21/2006 03:52:00 PM  
Anonymous Anonymous said...

"Anonymous said...
So, who gets the kick back on this?
SAS "

7/21/2006 07:59:16 AM
Although I think it should have been done long ago...worth noting
Orin Kramer the "Architect" of this is from Englewood.

7/21/2006 06:41:00 PM  
Anonymous Anonymous said...

Now we know why he had to raise the sales tax!! Those kickbacks are expensive.

7/22/2006 05:52:00 AM  

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