Robert E. Grady, a former partner in at Carlyle Group, on Thursday was elected chairman of the New Jersey State Investment Council, Trenton, which guides investment policy for the state’s $68.3 billion pension fund.
Mr. Grady, managing director of Cheyenne Capital Fund since 2009, replaces Orin Kramer, general partner of hedge fund Boston Provident Partners. Mr. Kramer did not plan to seek re-election as chairman but will remain a member of the council.
Mr. Kramer has been chairman since his appointment to the panel in 2002. Under his direction, the fund has shifted $9.4 billion out of equities into hedge funds and other alternative investment classes, according to the fund’s latest monthly report.
Mr. Grady was budget adviser on the transition team of Gov. Chris Christie, who took office Jan. 19. Mr. Grady was named chairman of Mr. Christie’s Council of Economic Advisors when the governor established the panel in January.
Also at the council meeting Thursday, consultant Strategic Investment Solutions said the state pension fund should put as much as 43% of its assets into alternative investments such as private equity and real estate to boost returns and protect against stock losses.
The panel voted to draft regulations that would let the fund put as much as 38% of assets into alternatives. The current limit is 28%, Mr. Kramer said.
“This would not necessarily increase New Jersey’s exposure to any alternatives by a nickel,” Kramer said. “It would simply give the council flexibility.”
The fund had about $9.8 billion, or 15% of its portfolio, in alternative investments as of Aug. 31, according to a monthly investment report.
New Jersey’s current authorized limit on alternatives is the 18th-lowest among the 21 largest U.S. state pension funds, Pete Keliuotis, managing director of Strategic, told the council.
“Over the past several years, alternative investments have significantly outperformed public markets on a risk-adjusted basis, and we believe they will continue to do so over the long term,” Mr. Keliuotis wrote in a memo to the council.
The fund would realize an additional 30 to 50 basis points of investment gain annually, or anywhere from $210 million to $350 million, with “modestly higher risk,” the report says. A basis point is 0.01 percentage point.
Over the past 10 years, the fund has earned a 3% annualized return, compared to the 8.25% actuaries assume the fund will gain when they determine the system’s funding adequacy, according to the investment report. Through June 30, 2009, the pension system was underfunded by $46 billion using that measure, and had 66% of the assets needed to fund promised benefits, according to Bloomberg data.