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Pension Funds

New Jersey reports decrease in costs for alternative investments

The New Jersey Division of Investment, which manages investments for the $70.9 billion New Jersey Pension Fund, Trenton, paid $363.1 million in fees and expenses to outside investment firms that managed alternative investments for the fiscal year ended June 30, down from $392.1 million in the fiscal year ended June 30, 2017.

The division paid $267.9 million in "performance allocations" — bonuses for firms' exceeding performance goals — for fiscal 2018 vs. $273.8 million for the 2017 fiscal year. The aggregate expenses were $631 million, down from $666 million, for the external managers who handle private equity, hedge funds, real estate, real assets, global diversified credit and opportunistic alternatives.

The fee data were part of the fiscal year annual report issued by the State Investment Council, which governs investment policies for the division of investment.

For the most recent fiscal year, the net return of alternative investments was 11.9%, producing $2.7 billion in profit, the report said. Taken as a whole, these investments have been "a significant driver of the pension fund's performance in recent years," the report said.

The annualized return of alternatives for the five years ended June 30, 2018, was 9.2%, or 380 basis points higher than the rest of the New Jersey Pension Fund excluding alternatives, the report said.

Fees and expenses for alternatives in fiscal 2018 declined primarily due a decrease in hedge fund fees and expenses, which is "consistent with the council's decision to reduce the overall allocation to hedge funds," the report said.

The pension fund redeemed $1.2 billion from hedge funds during fiscal 2018 "in line with our targeted asset allocation plan" of reducing exposure to 6% of assets from 12.5%, the report said.

Overall performance allocations were lower in fiscal 2018 vs. fiscal 2017 due to a sharp reduction in performance allocations for hedge funds, the report added. Performance allocations were "significantly higher" for private equity in fiscal 2018 vs. fiscal 2017, "in line with strong investment returns," the report said. The private equity net return was 17.52%, vs. 12.66% for the 2017 fiscal year. The Cambridge Associates Blended Benchmark for private equity was 20.42% in fiscal 2018 and 14.1% for fiscal 2017.