Christie’s Recommendation Not Supported by Performance

Erin reported yesterday on an unfolding situation in New Jersey, where Governor-elect Chris Christie has asked that the state indefinately halt all alternative investment activities. The New Jersey Investment Board is reviewing the recommendation, but has not yet chosen to grant Christie’s request.

What we’re still trying to figure out is why Christie singled out alternative assets. He gives no explanation in his memo, nor has he returned our calls. In the absence of rationale, we figured that it must have something to do with alternative investment returns, so we took a look at the state’s most recent alternative investment results.

This is where it gets strange: Certain segments of New Jersey’s alternative asset returns don’t look any worse than its returns in other asset classes. Take private equity, for example: PE returns for Q1 2009 were -2.77%, compared to an overall pension return of -5.91 percent (Q1 is the most recent quarter for which such data is available). Moreover, New Jersey’s private equity performance was superior to the Cambridge Associates benchmark.

Hedge funds have underperformed the overall system in Q3, but are still positive. Real estate is where Christie might have an argument, but he chose to use a grenade rather than a scalpel.

Here are some more thoughts, from my weekly video segment with Reuters: