New Jersey Pension Plan Slashes Hedge Fund Allocation

Aug 3 2016 | 11:22pm ET

The New Jersey Investment Council, which manages the state’s $72 billion pension fund, has voted unanimously to cut its allocation to hedge funds from 12.5% to 6% in fiscal 2017.

The decision follows a similar vote in New York earlier this year and California’s 2014 move to exit hedge funds due to the cost and complexity. New Jersey’s vote came after significant pressure was put on the Council by unions in the state upset about the millions in fees paid to hedge funds that have posted mediocre results.

New Jersey has approximately $9.1 billion invested in nearly two dozen hedge funds as of the end of May, including well-known names ValueAct Capital Partners, Brevan Howard LP, and Och-Ziff Capital Management, noted a Reuters article. 

Included in the fiscal 2017 plan is a goal of paying only 1% in management fees, instead of the typical 2%, and 10% in profits versus the standard 20%. New Jersey will redeem a further $300 million from hedge funds in addition to the $1 billion in redemptions it has already filed this year, and plans to lower the number of firms in which it invests.

Other specifics in the new plan include elimination of long-short equity and event-driven managers and a sharply reduced emphasis on credit and distressed debt funds, according Bloomberg citing investment documents. Market-neutral and global macro funds will remain at current allocation levels.

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