New Jersey’s public worker pension fund gained more than $5 billion in market value in the fiscal year that ended June 30, lifting its total value to about $91.4 billion as it continued to rebound from heavy losses in 2022.
That amounted to a 9.1% gain on investments, outperforming the fund’s benchmark and its long-term assumed rate of return, according to a report from the New Jersey Treasury Department’s Division of Investment.
While that is still about $7 billion below a high point reached in 2021, when post-pandemic gains lifted the fund to nearly $100 billion, it marks a strong year for New Jersey’s investment managers who continue to guide the fund through historic volatility in capital markets worldwide.
“Capital markets have been quite volatile, and they are still in flux,” Division of Investment Director Shoaib Khan told the State Investment Council during a virtual meeting Wednesday.
New Jersey’s pension fund supports the retirement of more than 815,000 active and retired state and local government workers, and it has long been among the worst-funded in the nation.
Democratic Gov. Phil Murphy’s administration, along with the help of state lawmakers, has made significant strides in bringing the system back to full funding.
The last two state budgets included full payments to the pension fund of roughly $7 billion each year, the first time that’s been done in a quarter century. And the state’s current $54.3 billion spending plan, signed by Murphy at the end of June, includes another full payment of $7.1 billion.
That has helped New Jersey rack up a string of credit rating upgrades over the past year, and it puts the state on a solid path toward fully funding the pension system. But investment managers continue to face economic headwinds that threaten to put a damper on recent gains in market value, including the lingering threat of an economic recession.
“If you peel the onion a little bit, there are a number of concerns,” Khan said, referring to a rapidly evolving geopolitical landscape and inflation fighting by the Federal Reserve, among other factors, that cast a shadow over global financial markets.
Investment managers have put the fund in a strong position to weather turbulent markets in the short-term, thanks to tactical decisions made in early 2022 when Russian President Vladimir Putin invaded Ukraine and the annual rate of inflation in the U.S. started climbing toward a 40-year high.
The financial storm clouds that were gathering in January and February last year prompted fund managers to shift to a more defensive position and increase the amount of cash on hand, according to Khan.
As of June 30, when the fiscal year ended, the fund’s cash holdings were nearly five percentage points higher than normal, which provides the fund with flexibility to avoid actual losses and take advantage of new investment opportunities as they come available.
“The overweight position in cash is simply a response to the environment we find ourselves in, and it’s tactical,” Khan said.
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Derek Hall may be reached at dhall@njadvancemedia.com. Follow him on Twitter @dereknhall.
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