Municipal Government

Hedge Fund Fees Reduced for Union Pensions

August 11, 2016 
By Stephanie West

Trenton, NJ – Led by the New Jersey State AFL-CIO, labor unions have succeeded in achieving the largest reductions in pension fund
fees in the history of the New Jersey pension funds. The decision will reduce the plan’s hedge fund allocation by more than half from the current 12.5% to 6% in FY17.

“The old saying is that if both sides aren’t completely happy, then it’s a good compromise.  With this in mind, I’m glad both labor representatives and administration representatives have come together to significantly cut hedge funds and reduce the outrageous level of Wall Street compensation that are negatively impacting our pension portfolio,” said New Jersey State AFL-CIO President Wowkanech.  “However, even with this action by the SIC, New Jersey is still over invested in hedge funds when compared to the average of all states and additional reforms must be acted upon.  But for today, this is a significant move in the right direction,” Wowkanech concluded.

Despite the Wall Street sales pitch, hedge funds are just as likely as not to outperform the market, but consistently charge high management fees that can significantly reduce the growth potential of the state pension fund over time.

With the changes made, New Jersey pension fund exposure to hedge funds will be reduced by $3 billion, saving pension funds more than $120 million in fees in FY17 alone. However, this savings still represents a small percentage of the $728 million in fees paid to private fund managers in FY15.

August 10, 2016

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