- Associated Press - Thursday, June 4, 2015

TRENTON, N.J. (AP) - Lawmakers raised red flags on Thursday regarding $600 million in fees the state paid over the last year to manage part of its investment on behalf of the nearly $80 billion pension fund.

They raised concerns during a state Senate Legislative Oversight Committee hearing in Trenton as the public pension fund has become a major sticking point between the Democrat-led Legislature and Republican Gov. Chris Christie.

It’s a multifaceted issue that revolves around the pension fund’s move over the last decade away from more traditional investments like stocks and bonds into alternative investments, including private equity, real estate and hedge funds. Fees to third-party managers have risen from about $140 million in 2010 to about $600 million this year. The fund remains more invested in traditional assets than alternatives.

The issue is also politically radioactive since Christie is battling public-sector unions - with the Democratic leadership’s support - in the state Supreme Court over how much the state should pay into the fund for fiscal years 2015. A decision there is pending. Christie and lawmakers are also in the midst of a budget battle with the fiscal year ending June 30.

State Sen. Bob Gordon said Thursday after the hearing he’s concerned that nearly $600 million in fees to hedge fund managers could balloon further.

“If this were to go on, it can have a very substantial effect on the viability of the pension fund,” he said. “Six-hundred million dollars a year becomes tens of billions of dollars over the longer term.”

The committee heard from five witnesses including the chair and vice chair of the state panel that oversees the pension. State Investment Council Chairman Brendan “Tom” Byrne Jr. defended investments in alternative assets arguing that fees paid are a small percentage of what the funds make for the fund’s nearly 700,000 beneficiaries. The fund has outperformed the Treasury department’s benchmarks, he noted. Byrne is a former Democratic State Party chairman and was appointed to the council by Christie.

He also likened the fund managers to medical specialists, saying that their expertise is needed in order to realize higher returns.

But council Vice Chairman Adam Liebtag, who is president of the Communication Workers of America Local 1036, said pensioners could be better off if the state’s Division of Investment managed more of the fund’s assets. Unlike most states, New Jersey manages most of its retirement fund assets through the state Treasury. At a cost of $10 million, state workers could deliver more value, Liebtag suggested.

“Should the public be in the business of generating $600 million a year in revenue for a handful of hedge fund managers?” he asked. “I don’t know that that’s the right public policy.”

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