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Pension Funds

New Jersey adopts ESG policy, reports 9.06% gain in fiscal year

The New Jersey Pension Fund, Trenton, will operate under a new formal policy for evaluating environmental, social and governance practices for its investments.

The new ESG policy was approved Thursday by an 8-0 vote by the State Investment Council.

"Investments that can demonstrate measurable positive ESG-related outcomes may also provide for improved investment returns with reduced risk," said a report from the division of investment, which manages investments for the $77 billion pension fund. "The ESG policy is intended to enhance long-term risk-adjusted returns."

ESG considerations "will be integrated into all asset classes and investment analysis, with consideration for both active and passive investments," the report said. "ESG considerations will also be incorporated into the proxy-voting policy." The new policy will take effect immediately.

The report also described the role of engagement — the practice of the pension fund officials advocating changes in the practices of companies and funds with which the pension fund invests.

"Engagement activities may include a wide range of approaches such as contact with a company, proxy voting, shareholder initiatives, and initiatives with other investors," the report said. "Decisions regarding purchase, sales, retention and divestment could be made at any point subject to fiduciary duties."

Separately, the pension fund returned a net 9.06% for the fiscal year ended June 30, topping the benchmark of 8.65%.

The unaudited data for the pension fund was presented Thursday in a report by the division of investment.

The report said the pension fund achieved a three-year annualized return of 6.9%, trailing the benchmark of 7.21%. However, the annualized five-year return of 8.23% exceeded the 8% benchmark and the annualized 10-year return of 6.75% topped the benchmark of 6.36%. The pension fund returned a net 13.07% in the previous fiscal year, below the benchmark of 13.14%.

The asset class returns for the fiscal year ended June 30 were buyouts/venture capital, 17.94%; debt-related private equity, 14.97%; U.S. equities, 12.78%; real estate, 12.59%; real assets, 12.48%; global diversified credit, 9.46%; real estate debt, 8.29%; non-U.S. developed market equities, 8.19%; credit-oriented hedge funds, 6.88%; emerging markets equity, 5.4%; risk-mitigation strategies, 5.04%; public high yield, 2.78%; cash, 1.81%; U.S. government fixed income. -0.77%; and investment-grade credit, -0.68%.)

The pension fund's asset allocation as of June 30 was 30.54% U.S. equity, 11.56% non-U.S. developed market equity, 10.05% buyouts/venture capital, 9.57% investment-grade credit, 6.53% emerging markets equity, 5.81% global diversified credit, 5.71% real estate, 5% cash, 4.76% risk-mitigation strategies, 3.15% real assets, 1.61% U.S. government fixed income, 1.29% public high yield, 1.26% debt-related private equity, 1.14% credit-oriented hedge funds, 0.57% equity-oriented hedge funds, 0.56% opportunistic private equity, 0.54% debt-related real estate and the rest in other.