Reader says Don’t blame the State Workers on Pensions
NJ Gov. Chris Christie’s pension moves cost taxpayers and retirees billions
Aug 25th 2014 3:05PM
By RYAN GORMAN
Embattled New Jersey Governor Chris Christie faces another possible scandal – this time for possibly costing tax payers nearly $4 billion after diverting state pension funds to Wall Street firms.
Wall Street mega firms Blackstone, Third Point, Omega Advisors, Elliot Associates and The Carlyle Group have reportedly pocketed $3.8 billion dollars in fees since 2010 at a rate triple what was paid to pension fund managers prior to Christie assuming office.
Christie advisor Robert Grady notably had a long career at The Carlyle Group prior to joining the government, according to the International Business Times.
The switch was made in 2010 to give the state “diversified portfolio and maximize returns while appropriately managing risk,” Grady told the trade publication Institutional Investor in a report headlined “New Jersey ups the ante.”
The Carlyle Group has received $450 million in state pension funds while ranking among the top fee earners on Wall Street, according to state disclosure documents.
All management fees paid to firms by the pension have skyrocketed from only $125.1 million in 2009 to nearly $400 million in 2013, according to the New Jersey State Investment Council, which oversees the pension.
Those higher fees coupled with underperforming assets have left the pension with a benefits gap bigger than the state’s entire education budget.
This while the pension eked out a return of only 11.8 percent last year while similar funds average nearly a full percent higher, according to the IB Times.
Both pension funds used by teachers in California saw returns well over 18 percent in June alone, the Associated Press reported. They had expected returns of only 7.5 percent for the whole year.
New Jersey’s fund is also invested at a rate of just over 25 percent in financial firms, according to the NJSIC, more than double any other sector.
At least one person voted against Christie’s diversion plan, and he told the IB Times this outcome was inevitable.
“All the leading players on the [New Jersey State Investment Council] were from the alternative universe and all of their decisions were driven by a political agenda and an investment ideology which had no relationship to facts on the ground,” said Jim Marketti.
“And the facts were that you simply couldn’t justify these investments on the basis of what they cost in fees to generate a dollar of new returns.”
A New Jersey official defended the moves, saying that the state’s pension has earned a return this year of 15.9 percent.
Similar funds are averaging returns of well over 17 percent, according to the IB Times.
This is just the latest in a series of bizarre scandals for Christie that have included the “Bridgegate” traffic tie-up at the George Washington Bridge, the possible bullying of at least one high-profile mayor (Hoboken’s Dawn Zimmer) over Superstorm Sandy recovery funds and scrutiny of real estate deals around the state.
The questionable quandries have put a dent in his reported presidential ambitions as Christie defends the pension problems by saying they are proof retirement benefits to retirees – earned through decades of service to the Garden State – need to be cut.
There’s no word on whether “The Governor” would also demand fees paid to Wall Street also be cut.
https://www.aol.com/article/2014/08/25/nj-gov-chris-christies-pension-moves-cost-taxpayers-and-retire/20952169/
The problem with this article is it fails to mention all the graft of prior administrations , looking to blame only Christie while both Corzine and Mac Creepy ( and most of them since Whitman) have far worse records managing the state pension funds ,Mac Creepy even hired non wall street totally unqualified advisors to manage money .
States like New Jersey are well past the breaking point ,with companies and taxpayers high tailing it out of here , leaving fewer and fewer people to pick up the tab .
Classic cherry picking of returns. Compare the returns to the stock market after the stock market is up 18% and call the 11% under-performing. The important comparison would be over a longer period of time and not cherry picking a window of great stock index performance. The more diversified approach is likely a better approach for the pension money.
$3.8 billion dollars in fees since 2010 at a rate triple what was paid to pension fund managers prior to Christie assuming office.
Christie advisor Robert Grady notably had a long career at The Carlyle Group prior to joining the government, according to the International Business Times.
Its not about Cherry Picking . its about our Governor hiring his friends and paying triple while saying the pension is out of control.
These pension managers make money hand over fist while complaining that the state worker get to much. Typical
Lets see, the typical hedge fund charges 2% of assets plus 20% of profits.
Their goal? Beat the S&P 500 index.
Apparently most are unable, but still collect their fees.
Putting pension money in the S&P 500 Index fund at Vanguard, getting the institutional rate (cheaper fee than mom/pop investors get with admiral or investor funds) sounds like a winning move.
Abdoo for President
Yes let try to muddy the waters. Was it a winning move when the pension system was raid? Was it a winning move when the money was never put back? Was it a winning move when Governor reneged on obligation to fund the pension. Was this a winning move ? Christie advisor Robert Grady notably had a long career at The Carlyle Group prior to joining the government. One o f the companies that the pensions were invested. Its all good. when thing get tough I will go out have some town hall meeting and blame all the woes of NJ on the pension. I even get my stockbroker friend in Ridgewood to post on the blog to back me up. Abadoo for Governor
Where’d you get that “$3.8bn in fees” number ? That’s an outright lie, get your facts straight. NJ’s pension funds have paid a total of $939 million in investment management fees since 2010 to generate $35 BILLION in returns. If you’d bothered to even read the annual report instead of some union hack on AOL, you would have know that. The facts are here: https://www.nj.gov/treasury/doinvest/pdf/AnnualReport/2013AnnualReportStateInvestmentCouncil.pdf
The galling thing about the article is that it makes it sound like the ONLY solution to this problem is cut pension management fees. NO! NO! NO! How about the ridiculous and completely unsustainable pension, healthcare & accumulated leave benefits our politicians have granted in return for union votes ? That sleight of hand from the unions – like there is no other option but to cut fees – is just unbelievable. Real, meaningful concessions are part of the solution, too, including higher healthcare & pension contributions from employees, as well as reduced accumulated leave.
Looks like you’re trying to muddy the waters #6, trying to act like everyone BUT the unions is to blame. If you’d bothered to read the last paragraph of the post above, you would have seen some wise words: “Depending on huge returns on wall street for prolonged periods of time is foolish and very dangerous. As the article points out fees need to be cut, money borrowed needs to be returned with interest ,and retirees living out of state need to be taxed on their pension at a higher rate, as well as current state employees need to pay a far larger share for their benefits.”
Does #10 mean that all of the preceding Governors’ pension managers made a better return than the present one? Just wondering.
The initial headline is clearly incorrect in suggesting (as it does) that the pension shortfall is due to higher management fees. If all the money was just invested in an S&P Exchange Traded Fund tracker, there would still be a gigantic shortfall problem which is directly a result of promising too much. Bribing people for votes with pension promises from many many years ago has nothing to do with the current shortfall or the current administration. Also, regarding management fees and diversified investment strategies that are less volatile and avoided the -54% S&P decline from October 2007 to March 2009…… ALL the multi-billion dollar endowments of top universities employ a diversified investment plan that includes “alternatives” like hard assets and other less liquid investments that reduce their exposure to the volatility of U.S. stocks and they pay similar management fees as the pension plan pays for this. The endowments have out performed the stock market over very long periods of time. Investment management fees are not the reason for the pension shortfall. Cherry picking a small window of S&P out-performance is a diversion from the real problem.
I meant to say; pension promises from many many years ago caused the current shortfall and have nothing to do with the current administration. Also, the massive gap became much bigger in 2008 due to a decline in the pension value from the stock market crash.
Defined benefit plans are fruit ripe for corrupt politicians and union officials. Move to defined contribution plans and stick to it. Let the beneficiary choose their own investment strategy. NJ already has too many IOU’s that it can’t pay without withholding pension obligations and giving political cronies business.
You forgot to mention that that ‘markets flucuate’.
Sure the S&P took a nosedive, as did everyone else’s portfolio unless you were a short . (AND most weren’t)
And if you put money in the S&P 500 close to March2009 your investment has doubled!
Hence the reason, the S&P 500 index is the one all the paid money managers try to beat, and most fail to do so.