Court OK's Jersey plan to invest pension money in hedge funds

A state appeals court yesterday approved New Jersey's controversial decision to invest $9 billion of public pension funds in hedge funds and other "alternative investments," saying such holdings are allowed by the state laws that govern the $78 billion retirement ac counts.

The unpublished decision rejects a challenge by two of the state's most influential public employees unions, the Communica tions Workers of America and the New Jersey Education Association, to the investment strategy.

The unions had challenged the strategy, saying the new investments were overly risky and raised the potential for political abuses. They claimed state laws limit the pension investments to traditional holdings like stock, but the court rejected that claim.

Separately, the appeals court ruled the unions were correct in claiming state law does not allow the Division of Investment to hire private managers to select stocks for the state to invest in.

The division has retained nine outside managers, according to Tom Vincz, a spokesman for the state Treasury Department. Vincz said the state is consulting its lawyers regarding the status of the management deals.

The state's Division of Investment launched the alternative investment strategy in 2005, after the collapse of the stock markets in 2001 cost the retirement accounts more than $14 billion.

The move was designed to protect the pension accounts from future stock declines by diversifying the holdings from traditional stocks, which at the time made up more than 65 percent of the ac count's holdings.

With the stock market again in decline, the pension accounts lost almost $3 billion last year, an investment loss of 3.1 percent. Stocks alone were down 10.38 percent, the division reported.

According to Division Director William Clark, the fund's overall loss would have been double the actual decline if funds had not been shifted out of stocks into the alternative holdings.