Report: Jersey Pension Shortfall Due to Risky Christie Investments

Governor's strategy has cost the state billions of dollars.

Chris Christie might be great at yelling at teachers, but you might not want to take financial advice from him.

The International Business Times reports today that New Jersey investment officials have increasingly directed state pension funds into “riskier investments” on Wall Street — often with funds run by political allies of the governor — that have ended up underperforming the stock market. The underperformance of those investments have threatened the integrity of the pension system.

Since Gov. Chris Christie took office, he has nearly tripled the amount of retiree cash invested in alternative investment firms — many of whose employees have made financial contributions to political groups backing Christie’s election campaigns. In that time, the gap between New Jersey’s alternative portfolio and the broader market has rapidly expanded, costing taxpayers billions in unrealized returns and threatening the financial stability of the $78 billion pension system. The state’s pension funding shortfalls — which have been exacerbated by Christie’s market-trailing investment strategy — were one of the factors cited by Fitch Ratings in its decision last week to downgrade the state’s bond rating for the second time.

The below-market results from the state’s $20 billion alternative investment portfolio belie repeated assurances from New Jersey officials who said the investments would overperform the stock market.

As an alternative, the IBT points to Pennsylvania, where Montgomery County Commissioner Josh Shapiro fired the money managers handling the county’s pension funds and invested the cash, instead, into funds indexed to the performance of the stock market. Trying to beat the market’s performance, he said, is ultimately a fool’s game.

“Over the long haul, the overall market has an impressive record that almost no managers can beat,” Shaprio said in promoting the move. “The record is clear that passively managed, broad-based index funds have substantially lower fees than actively managed funds, and asset managers rarely beat the market over the long run.”

Christie has spent much of his administration pretending to be the proverbial “grownup in the room” when it came need to reform state worker pensions. It turns out, though that he might be causing the problem more than he’s fixing it.