N.J. seeks adviser on how to invest its pension funds

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N.J. seeks adviser on how to invest its pension funds

By John Dyer

Trenton Bureau, August 21, 2003

The state Treasury Department is seeking to hire a consultant for New Jersey's ailing pension funds, a move that drew fire from critics who feared that it would be the first step toward privatizing the fund's management.

The request for proposals, issued to 24 firms across the country on Wednesday, calls for a consultant who would offer advice on how to invest the funds' assets.

New Jersey's pension funds cover retirement benefits of 630,000 working and retired public employees, including state workers and local teachers, firefighters, and police officers. As of June 30, the funds were worth $62.2 billion, down about $20 billion since 2000. Governor McGreevey has said the funds need to be overhauled in light of those losses.

Officials have suggested replacing the civil servants who manage the funds with private managers. That's controversial, however, because unions representing public employees believe that private firms would make riskier investments than state-employed managers. They also fear that McGreevey might select private firms on the basis of who has contributed to Democratic political campaigns, rather than who would best serve the interests of retirees.

One of the firms invited to bid on the consultant contract, New England Pension Consultants, works for New Jersey now, but only to provide comparisons between the fund's performance and that of other pension systems. The new consultant would have a broader role, offering alternative investment strategies and other technical advice.

"Every major fund in the United States except New Jersey has had a consultant providing assistance on a broad range of investment issues," said Orin Kramer, chairman of the State Investment Council, which oversees the pension fund. "New Jersey ought to treat its investment portfolio with the same seriousness that you find in any other major fund."

But critics said the new consultants would help New Jersey replace state investment managers with private managers. The Treasury Department's request for proposals calls for consultants who will be able to help officials select outside investment firms.

"This thing is laced with setting the consultants up with the treasurer's scheme to move investments out of house to external management - which we are opposed to," said Jim Marketti, president of Local 1031 of the Communications Workers of America, which represents Department of Transportation workers. "It assumes there's going to be outside investment managers."

Treasury spokesman Tom Vincz said officials had not decided whether investment decisions should be privatized. But since privatization is an option, Vincz said, the state wants a consultant who will be able to deal with that possibility.

Last fall, Treasurer John McCormac commissioned a state pension portfolio audit that could recommend that private managers take over the fund. Vincz could not say when the audit would be released.

Officials have also sought to head off criticism that politics might affect which private manager controls the fund. At the last meeting of the State Investment Council in July, Kramer proposed banning pension managers who give political contributions to state officials.