NJ Pension Fund Returns 6.27% Misses Benchmark, Target

New Jersey’s public pension fund returned 6.27% for the fiscal year ending June 30, which is below its 7.5% assumed rate of return, as well as its benchmark’s return of 7.07%.

“We believe that the fiscal year 2019 results are generally in line with the returns of similar matched peer pension plans,” said Corey Amon, director of the state Division of Investment, at a State Investment Council meeting Sept. 25., according to local media reports. “The majority of the difference between the pension fund return and the policy benchmark is the result of relative returns within the pension fund’s largest portfolio, the US equity portfolio.”

The pension fund also reported three-, five-, 10-, and 20-year annualized returns net of fees of 9.43%, 6.21%, 9.22%, and 5.69% respectively, compared with the benchmark’s returns of 9.62%, 6.33%, 8.82%, and 5.32% for the same time periods. The fund also returned 8.29% annualized over the past 25 years, however, there is no information available for the benchmark’s 25-year return.

Investment-grade credit, private equity, andreal estate were the top performing assets for the fund, returning 10.07%, 10.03%, and 8.69% respectively. It was the third straight year that private equity had double-digit returns for the portfolio. Investment-grade credit and real estate beat their benchmarks’ returns of 9.42% and 6.55% respectively, while there was no benchmark information available for private equity.

The fund’s worst performing assets were real assets, non-US developed market equities, and emerging market equities, which returned 0.48%, 1.16%, and 2.38% respectively.

According to the New Jersey Division of Investment’s director’s report, absolute returns were driven by positive economic and earnings growth, as well as expectations for more accommodative monetary policy during the second half of the fiscal year.

It also said that positive returns for the full fiscal year “masked volatility” as the broad market fully recovered from a steep decline October through December that “was precipitated by trade wars and concerns of higher interest rates.”

Additionally, the report said the US Equity portfolio’s emphasis on value-oriented and small cap equities affected relative returns as growth-oriented and large cap equities outperformed.

The asset allocation of the fund as of Aug. 31 was 57.53% in global growth, 20.15% in income, 8.65% in real return, 6.83% in liquidity, 4.38% in risk mitigation, 1.67% in Police & Fire Mortgage Program, and 0.24% in other cash and receivable.

Looking ahead to fiscal year 2020, the report said that “potential headwinds” include concerns related to a possible economic slowdown as well as continued trade tensions that may lead to heightened volatility in equity markets. It also said that earnings growth is expected to moderate as demand softens.