August 2, 2012 / 9:43 PM / 8 years ago

UPDATE 1-New Jersey pension system earns 2.26 percent in 2012

By Hilary Russ

Aug 2 (Reuters) - New Jersey’s $69.9 billion public pension system returned 2.26 percent in fiscal year 2012, falling short of its 7.95 percent assumed rate of return, the state said on Thursday.

The performance results, which the state emphasized were preliminary, were released at a meeting of the New Jersey State Investment Council, which is seeking to boost investments in riskier alternative assets like hedge funds to nearly 30 percent.

As state pension funds across the United States have begun reporting their performance results for fiscal 2012, many have missed their assumed rates of return by wide margins. Over the last year, U.S. stock losses, combined with record-low interest rates, have taken a toll on the yield of financial assets.

New Jersey’s low performance in fiscal 2012 was offset by better results in fiscal 2011, bringing the funds’ two-year average annual rate of return to about 10 percent, according to Andy Pratt, spokesman for the New Jersey Treasury Department’s Division of Investment, which determines how to invest the pension funds’ money.

ALTERNATIVE INVESTMENT TARGET AT 29.7 PCT

The council, which advises the investment division, also voted on Thursday to support nearly $1.5 billion in new alternative investments, including placing $600 million into separate accounts at Och-Ziff Capital Management Group, a publicly traded hedge fund that also manages money for pension funds in California and Massachusetts.

At the end of fiscal 2012, New Jersey had $16 billion in alternative investments, mostly in hedge funds and private equity, with the rest in real estate and some real assets.

That total was nearly 23 percent of all holdings for the state’s pension funds in 2012 — just shy of its year-end target of 26 percent for alternative investment allocation.

The rest of the portfolio consisted of $31.7 billion in equity, nearly $20.1 billion in fixed income and $1.6 billion in cash.

New Jersey is set to increase its target for alternative investments to 29.7 percent in fiscal 2013. The state currently caps alternative investments at 38 percent of all assets for its pension funds.

“New Jersey’s diversified pension portfolio handily beat its benchmarks in fiscal 2012, a period of great uncertainty and volatility for all types of investments,” Pratt said, comparing the results to a weighted benchmark return of just 0.25 percent.

For fiscal 2012, New Jersey also came out ahead of several other large pension funds’ performances.

In July, the $233 billion California Public Employees Retirement System, the biggest U.S. public pension fund, reported a 1 percent return for the year ended June 30, far below CalPERS’ 7.5 percent target.

The $150.6 billion California Teachers pension fund, or CalSTRS, earned 1.8 percent. Various New York City pension funds reported an annual return of 1.7 percent, while Florida’s $122.7 billion fund grew just 0.29 percent.

In New Jersey, the state’s five main pension funds cover retirement benefits for about 769,000 participants.

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