New Jersey’s pension funds continued to outperform benchmarks in the last fiscal and calendar years, officials said January 27 at the State Investment Council’s annual meeting. The fund was boosted in part by alternative investments, despite hedge fund losses.
For the fiscal year that ended last July, the $79 billion fund gained 4.16 percent, beating a 2.93 benchmark by 123 basis points, according to figures released. While gains for the 2015 calendar year were just .63 percent, that was 111 basis points ahead of the .48 percent benchmark.
Over the last 15 fiscal years, the fund posted 133.71 percent cumulative returns and 5.45 percent annualized returns. The policy benchmarks for those years were 113.38 percent cumulative and 4.85 percent annual, meaning the fund was ahead by 2,033 and 60 basis points, respectively. The fund has been ahead of benchmarks since fiscal year 2010.
Compared to other large public pension funds, New Jersey’s performance ranked just outside the top quartile in fiscal year 2015. The fund was ahead of the median over the last 10 years. During that last decade, the fund generated better returns than 69 percent of its peers, while assuming less risk than 85 percent of those other funds.
Alternative investments, a key point of contention with some, performed well overall. The fund would have been down 1.88 percent last year if not for the alternative’s 5.6 percent in gains. But the area that has drawn the most criticism — hedge funds — did not do well. Eight out of the state’s nine hedge funds strategies posted losses over the last year, ranging from .26 percent to as much as 8 percent. Just activist investment was up by a modest .36 percent. The alternatives outperformed the overall fund over the last five calendar years.
Officials said the losses were the result of sharp market declines that limited “tactical trading opportunities.” The state said the hedge funds were also hurt by “weak equity, credit and commodity markets.”
The investment council faced anger last year from public workers concerned that far too much of their money had gone to cover the fees of hedge funds and other alternative forms of investments, like real estate, a strong point for the fund.
Some pension trustees had demanded an audit of those investments, complaining that a few more traditional funds had returned healthy profits without the bloated costs associated with a diversified portfolio. The commission agreed last year to commission a report examining the amount of money it has spent on management fees over the last five years.
A number of investment council members, including chairman Tom Byrne, have defended the hedge fund investments as key to protecting the fund during down times. They say alternatives are crucial to give some downside protection, with lower correlation to public markets.