|FOR IMMEDIATE RELEASE||
CONTACTS: Tom Vincz
|January 20, 2005||
Investment Council Adopts Policy and Procedures for Alternative Program
Oversight and Accountability as key hallmarks
– The State Investment Council today adopted rules and procedures
for New Jersey’s Alternative Investment Program (AIP) which firmly
establish vigilant oversight, ethical integrity and checks and balances
as the guiding principals.
The Council’s action today follows the November 2004 adoption of a policy to allocate 13 percent of New Jersey’s pension portfolio, currently valued at about $70 billion, to alternative investments. Under this policy, the 13 percent threshold would be reached over a period of 5 to 7 years through investments in the alternative classes of Private Equity, Real Assets and Absolute Return strategies, or Hedge Funds. The objective of the policy is to enhance risk-adjusted returns for New Jersey’s pension portfolio through diversification.
“Portfolio diversification provides New Jersey with the ability to significantly improve its overall risk-adjusted returns and better meet the financial obligations of the public pension system,” said Treasurer McCormac. “An alternative investment program provides the right balance to protect the long term interests of the taxpayers of the state and the participants of the system against swings in the market that elevate risk for traditional investments in stocks and bonds,” he said.
The Treasurer said the approval of the policy and procedures represents a significant step toward stabilizing and strengthening New Jersey investment program, adding that today’s vote marks a concluding chapter in a methodical reform process.
Previous steps include the commission of an independent operational review of the investment program in 2002, the implementation of recommendations of the review consultant in 2003, the procurement of a general investment consultant, an asset allocation study, and the adoption of the toughest “pay to play” safeguards for public investment programs in the country in 2004.
“We have been deliberate and thorough in diagnosing problems,” McCormac said. “We have been methodical and open-minded about prescribing solutions, and today we are prepared to move forward with sound, well-reasoned reforms,” he said.
The policy sets clear goals and guidelines for each new asset class and prescribes risk control responsibilities for the State Investment Council, the Division of Investment and the Department of the Treasury.
The procedures make clear that alternative class investments will be made by the Division of Investment with assistance from investment consultants, including the State’s General Investment Consultant and special consultants retained under State procurement law to provide advice regarding specific asset classes.
The Investment Division with oversight of the Investment Council will monitor and endeavor to control the overall risk of the AIP and ensure compliance with the AIP Policy. The procedures also establish criteria and detailed steps for the selection of outside managers for the alternative investment classes. The procedures require that each alternative investment made be monitored on an ongoing basis throughout the life of the alternative investment.
Finally, the procedures establish clear roles and responsibilities for monitoring and implementing each step of the AIP for the State Investment Council, the Division of Investment, asset class consultants and the general consultant.
“Each step of the AIP process has built-in protections to ensure integrity, internal controls, vigilant supervision and risk management. The beneficiaries who rely on the solvency of pension assets, and the taxpayers of New Jersey who guarantee that solvency, deserve nothing less,” McCormac said.
“Today’s approval strikes a solid balance between upholding the highest standards of integrity and management for our investment program while meeting our fiduciary responsibilities to the pension fund,” he said.
The full text of the new policy and procedures will be available next week on the Treasury Department homepage, www.state.nj.us/treasury. The policy and procedures will be implemented upon the adoption of formal regulations.