Wall Street's Woes Hit New Jersey's Pension Fund
Posted September 29, 2008

It looks like New Jerseyans have more to be concerned about than the loss of jobs – significant though that may be – resulting from Wall Street’s meltdown. Thanks to an investment in Lehman Brothers made months ago, the state pension fund is out $115 million.

In June, in a move New Jersey Division of Investment Director William G. Clark called a “mistake,” the state bought 4.3 million shares of the ill-fated company for $180 million.  
As the Atlantic City Press reports, the following month, the state sold 3.02 million of those shares for $56.3 million and another 720,000 shares for $11.5 million in August.

While Clark points out that the investment is but a small percent – less than 1 to be exact – of the state’s $76 billion pension fund and seems to complain about the “rabid, myopic focus on Lehman Brothers stock,” many Republicans have raised questions over the motivation behind the investment. According to The Trentonian, several media reports indicate, “New Jersey agreed in June to be one of a pool of investors to put up $6 billion to help Lehman’s balance sheet. The philosophy or at least hope behind the investment was the company would bring more jobs to the state.”

Clark took issue with this line of attack, citing political motivations behind it. Yet, while the Star Ledger notes state officials hold “the buy was a financial decision and had nothing to do with efforts to entice Lehman to move more of its operations across the river,” the paper also reports that the state’s purchase of 4 million shares of Lehman Brothers was made at a time when the company was already faltering.

The Ledger continues, “Whatever the reason, the decision proved to be a bad one…. Investment mistakes are unavoidable in funds as large as New Jersey’s, but the rationale for making a buy should be solid. That wasn’t the case.”

Still, Clark holds, “To the extent we could prepare, we did.” And he claims, “We made a mistake – and boy we made a big one on this stock…. But we’ve made a lot of right decisions.”

Echoing this sentiment, Orin Kramer, chairman of the Investment Council, stated, “The best managers in the world are not going to hit .900…. Cherry-picking a portfolio for its losses is unfair and demoralizing to the people.”

While these arguments might sound well and good, we strongly disagree that questioning the rationale behind a $180 million investment that quickly turned into a $115 million loss for New Jersey taxpayers is “cherry-picking.” To the contrary. As several legislators have already pointed out, $115 million may be a small amount to the state, but it is hardly small to the taxpayers who will have to make up for the losses.

Unfortunately, this latest loss actually does pale in comparison to the total loss experienced by the pension fund just this year. As the Ledger explains, “The losses come as an unprecedented financial meltdown this week left the chronically underfunded pension funds with a 6.3 percent loss on investments for the first eight months of 2008. Overall, the funds ended August containing $76 billion – about $5 billion less than they held at the start of the year.”

The Ledger notes, “The losses bode poorly for taxpayers, who must eventually cover
any shortfalls in the retirement accounts.”

The taxpayers of New Jersey should be able to rely on the state to make wise investment decisions with their hard-earned dollars. And in a state in which legislators have long been citing the need for ethics reform – and touting that they are the ones to bring it – transparency in government is key.

Unfortunately, with this recent investment fiasco, taxpayers are getting anything but transparency. This loss hits taxpayers where it hurts, and as such, they deserve answers.

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