At NJ pension, below-market salaries lead to PE brain drain

Low pay has drained New Jersey Division of Investment of its alternative-assets team, State Investment Council members said at a March 29 meeting.

Meghna Desai is the third member of the $71.6 billion pension system’s alternative-investment team to step down in the past eight months. She left for a position at an endowment on March 17, St. Patrick’s Day, “ruining what is otherwise my favorite day of the year,” said Division Director Christopher McDonough during the meeting. “She was a real asset to the division, managing some of our most important relationships.”

Jason MacDonald, who previously led New Jersey’s alternative-investment team, left the Division of Investment to lead Rutgers University’s endowment last year. Louis Kish, who managed investment operations, left for a position at Rutgers in 2016 as well.

Samantha Rosenstock has stepped in to lead the alternatives team in the wake of those departures, McDonough said. The Division of Investment wants to fill one opening on the team and McDonough is assembling a proposal for the treasurer to fill other positions.

Several council members, including Chairman Tom Byrne and Vice Chairman Adam Liebtag, said the State Investment Council members had lobbied Gov. Chris Christie and Treasurer Ford Scudder to raise investment-staff salaries, to no avail. At the March 29 meeting, Liebtag offered to chair a public meeting with the treasurer to emphasize how difficult it is to retain investment staff under the current compensation regime.

New Jersey’s investment staff is paid as much as two-thirds less than their peers at similar institutions, said Council Member Guy Haselmann during the meeting. “This staff deserved to be paid a competitive rate for the work that they do, and it’s not even competitive.”

Public pensions often lose investment professionals to the private sector, which typically offers higher salaries. In 2015, California Public Employees’ Retirement System published a compensation study reporting that it lost 18 professionals to the private sector over the previous five years. Salaries for CalPERS investment directors ranged between $235,000 and $282,000 as of mid-2015, according to the report.

According to New Jersey state records, the average salary of MacDonald, Desai, Rosenstock and Kish was a little more than $100,000.

“We’re supposed to be fiduciaries. If we’re not bringing this up, we’re not doing our job,” echoed Council Member Charles Dolan. “It’s ridiculous, and it’s not fair to you guys.”

After the meeting, Byrne told Buyouts he plans to engage in a “more formal” discussion with the treasurer in the near term on staff compensation. The council has not formalized its goals for how much it would like to raise compensation.

Even with those constraints, private equity remains one of the retirement system’s top-performing asset classes. The $6.8 billion PE portfolio delivered a trailing three-year return of 15.4 percent through Feb. 28, topping every other asset class, McDonough said during the meeting.

Since inception, the portfolio netted roughly $2.3 billion of gains above what New Jersey would have generated had it invested the portfolio in a weighted Russell 3000 public index, the system’s private equity consultant, TorreyCove Capital Partners, reported at the meeting.

“I want to close by thanking staff, again, for a job well done, under not the easiest circumstances,” Byrne said at the meeting.

Action Item: More about New Jersey’s portfolio: www.nj.gov/treasury/doinvest/

New Jersey State Investment Council Chairman Tom Byrne at a meeting of the council. Photo courtesy of the council.