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Pension Funds

New Jersey halts hedge fund, private equity investments, awaits direction from governor

State Investment Council chairman plans to depart, cites different views on investment strategy

New Jersey State House, Trenton

The New Jersey Division of Investment will hold off making commitments to hedge funds and private equity for the New Jersey Pension Fund, Trenton, pending Gov. Phil Murphy giving a clear signal on future investment strategy, saidBrendan Thomas Byrne Jr., chairman of the State Investment Council.

Mr. Byrne made his comments Wednesday at a meeting of the council, which formulates investment policies for the division, a unit of the Department of the Treasury. Mr. Byrne also announced he would leave his role as chairman by June 30, the end of the current fiscal year.

Messrs. Byrne and Murphy disagree on the role of alternative investments in the $76.7 billion New Jersey Pension Fund. Mr. Byrne has repeatedly said that hedge funds and private equity should be components of the fund to diversify investments and risks. Mr. Murphy campaigned on a platform of divesting hedge funds and private equity, arguing that their performance hasn't justified their fees.

During the last two meetings of the State Investment Council, the division of investment hasn't identified new commitments to hedge funds or private equity as they wait for Mr. Murphy's opinion, Mr. Byrne said.

"Neither the governor nor the acting treasurer have given any such direction," Jennifer Sciortino, a spokeswoman for acting Treasurer Elizabeth Muoio, wrote in an email Thursday. As of Feb. 28, equity-oriented hedge funds accounted for 1% of the pension fund's assets, with a target of zero, said a report submitted to the council. Credit-oriented hedge funds represented 1.15% of assets, with a target of 1%.

Buyouts/venture capital accounted for 9.07% of assets, with a target of 8.25%; debt-related private equity, 1.16% with a target of 2%; and opportunistic private equity, 0.48% of assets, without a target.

Mr. Byrne said in an interview that he didn't offer a formal resignation to the governor. He said has been in touch with members of Mr. Murphy's staff since the November election, offering to stay as chairman "for an orderly transition" while the governor selects a new chairman. Mr. Byrne has been acting chairman and later permanent chairman since November 2014.

"I see investment strategies differently than he does," said Mr. Bryne. "It's a logical time for a change."

Noting Mr. Murphy's criticism of fees, Mr. Byrne added: "I don't like high fees either. Our staff has done a great job in negotiating fees."

The division staff, due to retirements and departures, is short six employees, according to a report from the division provided to the council.

"The alternative investment team in particular is currently under-resourced and the division director has taken on the responsibility for managing the team day-to-day," the report said. "The division is working with human resources and the Treasurer's office to address near and long-term staffing needs."

The division's website has Samantha Rosenstock listed as head of alternative investments. Ms. Sciortino did not respond to questions by press time.

Separately, the division of investment announced it had divested its $1.9 million holdings in Vista Outdoor, which makes rifles and shotguns for sporting and hunting but also produces semi-automatic rifles. The division also identified holding $35 million in publicly traded "civilian firearms or ammunition companies" as of March 5. As of March 20, it didn't have investments in companies making automatic or semi-automatic firearms for civilians after completing the Vista Outdoor divestment. Future action will be explored through the investment council's recently created environment, social and governance subcommittee.

Also, Aon Hewitt Investment Consulting presented the council with an asset-liability study that said the pension fund "appears to have an appropriate level of risk" via its current asset allocations. The target allocation of what Aon Hewitt calls return-seeking assets — public equity, private equity and real estate — represents 75% of plan assets and is "suitable for a fund with a large deficit and a long-time horizon." The rest of the target is a combination of fixed income and defensive investments.