Saying tighter rules could scare off top investment managers and hurt the bottom line, Gov. Chris Christie yesterday rejected a bill that would have overhauled some New Jersey pension system fee-reporting requirements and expanded campaign-contribution restrictions.
Christie’s late-afternoon conditional veto struck a blow to lawmakers’ efforts to enhance the disclosure of the fees that are paid to the managers of hedge funds, venture-capital, and other private-equity firms when they are hired to handle the investment of a portion of the state’s roughly $80 billion public-employee pension system.
But some lawmakers say that the governor’s conditional veto is one in name only, asserting that he has effectively killed the bill.
During the past fiscal year, such fees totaled roughly $600 million, counting payments based on both management and performance of the investments as the pension system’s overall gains easily beat its assumed 7.9 percent rate of return, according to the latest annual report released by the New Jersey State Investment Council.
The use of the outside fund managers is part of a diversification strategy that state officials have said helps generate the best long-term gains for the roughly 773,000 current and retired state employees who rely on the pension system to fund their retirements.
But as Christie has reduced promised state payments into the pension system to help solve state budget problems, lawmakers have questioned whether the state is getting the best value by using the outside fund managers when impressive gains could potentially be realized using just in-house staff. Enhanced reporting of the fee arrangements would help demonstrate if the outside investments are worth it, they argued in support of the bill.
Christie, in his veto message, said though he generally agrees with the idea of disclosure, the bill would make New Jersey an outlier and put it at a competitive disadvantage. He recommended annual disclosure instead of the every few months of reporting called for in the bill.
“Many of the premiere fund managers may elect not to continue a relationship with the State if their confidential fee arrangements will be made public,” Christie said. “Any resultant loss of diversity in the fund manager pool will lead to suboptimal returns.”
To keep pace with a changing campaign-finance landscape and ensure investment decisions are only being driven by what’s best for the health of the pension system, lawmakers also sought to expand current restrictions on the political contributions that the outside fund managers are allowed to make. State law right now prohibits a fund from being permitted to handle a state pension system investment if it’s “investment-management professionals” have made a contribution to a state candidate or committee within two years.
But groups that are registered under federal Internal Revenue Service rules like the Republican Governors Association, an organization Christie led in 2014, don’t have to abide by New Jersey’s strict campaign-finance laws. And those group and others like it have been playing larger roles in state contests in recent years in the wake of the 2010 U.S. Supreme Court’s landmark Citizens United ruling.
The bill sought to widen the state limits to cover the outside groups. But Christie said that area is “already covered by Federal law.”
“Because the Federal campaign contribution laws pre-empt State law in this area, I cannot approve of such a provision,” Christie said in the veto message.
Lawmakers were unhappy with his rejection after it was announced yesterday.
“We need more transparency and openness in state government,” said Assemblyman Vince Mazzeo (D-Atlantic). “By vetoing this legislation the Governor has put his Wall Street friends in front of our state’s hard-working families, and it’s wrong.”
And it doesn’t look like they are interested in adopting Christie’s revisions.
“This conditional veto removes the most important provisions of the bill and will do far too little to keep politics and political favoritism away from New Jersey’s investments,” said Sen. Shirley Turner (D-Mercer).
“The governor effectively vetoed the bill because his conditional veto is little more than a fig leaf,” she said. “He completely removed the provisions that would prevent pay to play between state investors and national political organizations connected to state political figures, including the governor himself and the changes he made to the disclosure requirements are far too weak.”