US - New Jersey's Treasury Department can move ahead with planned investments into hedge funds and private equities after a state appeals court rejected a challenge from two of the state's largest unions.
of America and the New Jersey Education Association both argued that hedge funds and alternative investments were risky and open to abuses.
The funds have been hit by last year's loss of $3.1bn; and state actuaries have found that, due to the numbers of police and fire-fighters retiring with disabilities growing, arrears in the pension funds have climbed to nearly $29bn.
Thomas Vincz, from the New Jersey Pensions and Benefits Department, said: "New Jersey's alternative portfolio includes private equity, real estate,
commodities and hedge funds. We are confident that New Jersey has a diversified portfolio that will achieve risk-adjusted returns to service the long term liabilities of the combined state pension systems."
He added: "We also note that the State has the flexibility to make allocation changes responding to market conditions. The pension fund's
objective is to achieve an annual rate of return designated by the State treasurer, which is 8.25%."
Investing in private equity has proven successful despite the downturn.
While CalPERS, the US's largest pension fund, announced a 2.4% loss for the year ending in June, it received a 20% return from its private equity investments, which total 9.9% of its portfolio.
Additionally, State Street, one of the world's leading providers of financial services for investors, has revealed assets administered by its private equity fund team have exceeded $100bn and $14bn has been added in assets this year alone.
Larry W. Beeferman, director of the pensions and capital stewardship project at Harvard Law School, observed: "The challenge from unions will stem from concerns over risky strategy and transparency issues relating to hedge funds where de-stabilising tactics can be used, but what the Treasury Department wants is legitimate and its success will depend on proper asset management as many private equity portfolios have shown."
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