Mon Mar 17, 2014, 06:08 PM
kpete (50,047 posts)
Pensiongate? Christie Campaign Donors Won Huge Contracts While trumpeting “pension reform”
This was Chris Christie's much-vaunted "pension reform" -- namely, move the money to private firms run by contributors who take big fees and make high-risk investments. I wish more voters understood these issues, because all they hear is "reform" and they assume it's good. It's not. Public money should be invested conservatively, and under the greed mentality of the 90s, it wasn't. It has cost the public big-time, as we see in the attacks on public pensions:
Pensiongate? Christie Campaign Donors Won Huge Contracts
While trumpeting “pension reform,” the New Jersey governor placed retiree assets in the hands of hedge fund managers bankrolling his political career.
Lee Fang March 17, 2014
State pension plans that rely on hedge funds and other so-called “alternative investments” perform worse overall than those with more conservative strategies such as Treasury notes or the S&P 500, according to many studies, including recent reports from the Maryland Tax Education Foundation and Yale professor Roger Ibbotson. Critics charge that hedge funds not only are far more risky investments, but also that they produce less value because they carry hefty management fees and are entitled to a portion of future profits.
Early in his administration, Christie appointees at the Division of Investment pledged to double its allocation for “alternative investments,” with a goal of moving 33.2 percent of the $74.7 billion fund into an array of hedge funds, private equity firms and real estate deals. “For large pools of capital, I think it’s prudent to have both private equity and hedge funds as part of the mix of a diversified portfolio,” said Grady in 2010, shortly after voting to substantially increase the amount of New Jersey pension funds managed by hedge funds and other alternative investments.
“This started with Corzine,” says Hetty Rosenstein, head of CWA New Jersey, part of the Communications Workers of America, a union that represents many public workers in the state. “Many years ago, these investments were very conservative. But now they’ve changed that, and we’re invested in hedge funds and much more volatile investments from outside managers with high fees.”
According to industry reports, New Jersey now has the second-largest allocation in the country of state retiree money being managed by hedge funds. In 2013, the New Jersey pension program delivered a return of 11.79 percent—lower than the pension median of 16.1 percent that year. Part of the lower return, according to analysts, related to the amount allocated to alternative funds rather than to US equities. Fees also contributed to the smaller return. For example, hedge funds typically charge a 2 percent management fee on top of a 20 percent performance fee. The fees can quickly eat into any future gains, while making losses even more painful. In contrast, index funds or other, more traditional investments carry few (if any) fees.
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