Pensions & Investment Online- November 15, 2004 - New Jersey's move to external managers starts with alternatives

The New Jersey Division of Investment last week took its first step toward outside management of nearly $9 billion of the state's $66.4 billion pension fund. On Nov. 8, the state's investment council, chaired by Orin Kramer, approved a recommendation to begin an alternative investment program, targeting up to 13% of the fund's assets, or a total of about $8.6 billion, in three classes: real estate, private equity and absolute-return strategies or hedge funds….. The plan to diversify the state's pension fund stems from an operational review conducted last year by Independent Fiduciary Services Inc., Washington. It was released in September 2003 and included more than 20 recommendations to improve the portfolio's performance and the department's governance and structure. "One of the fundamental concerns that we had about the investment portfolio as we found it was that it was invested solely in publicly traded securities - no real estate, no private market assets of any description and no derivatives of any description," Samuel "Skip" Halpern, executive vice president of IFS, said in an interview. "From a diversification standpoint and from the standpoint of prudently taking advantage of opportunities in the market for enhanced return as well as better risk control, we thought the pre-existing portfolio was not well positioned," he said. The move into alternative investments is the beginning of a broader move to improve the fund's performance, but neither Mr. McCormac nor Mr. Kramer wanted to discuss the next phase in implementing the IFS recommendations.