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New Jersey negotiates fee cuts

The $71bn pension system says cuts in fees it pays to investment managers will save it at least $40m over the next five years.

New Jersey’s $71 billion pension system has won fee cuts and expense reductions from a number of its alternative investment managers, which will save at least $40 million over the next five years.

The pension, which has relationships with less than 20 alternatives managers, declined to name the firms that agreed to the cuts.

“We aren’t identifying the firms that agreed to the cuts by name,” said a New Jersey treasury spokesperson, adding that the negotiations began 1 July.

The state began negotiating fee cuts last year after the pension found that “total payments for advisory fees on alternative investments last year were $127 million”, said the spokesperson.

In November, New Jersey scored a significant concession from Cerberus Capital Management spin-out Tenex Capital Management, negotiating carried interest on the turnaround firm’s debut fund down to 16 percent from 20 percent as part of a $50 million commitment.

The fund also is offering to use 100 percent of transaction fees to offset the management fee, according to pension documents.

New Jersey has been considering selling a large chunk of its private equity portfolio on the secondaries market, sources have told PEI. No final decisions on the sale had been made as of last week, but sources said the pension is looking to whittle down its manager relationships to make its portfolio more manageable.

The secondaries planning comes as the pension is also trying to boost its allocation to alternatives  to 38 percent from 28 percent. The actual allocation to alternatives stands at about 14 percent. The recommended increase, which would take the pension’s allocation target to private equity, real estate, hedge funds and real assets from 7 percent to 12 percent, is going through a public comment review and still needs final approval.

In negotiating fee cuts, New Jersey is following the charge led by the largest public pension in the country.

The $229 billion California Public Employees’ Retirement System won concessions from a number of investment managers securing millions of dollars in savings.

In October, CIM Group has agreed to cut its fees paid by CalPERS by $50 million over five years. CalPERS had invested more than $600 million in three real estate funds with CIM Group, according to pension documents. CalPERS also made a $200 million commitment to the CIM Infrastructure Fund in August 2007.

In June, Ares Management agreed to cut $10 million in fees over five years for CalPERS and Relational Investors agreed to a $30 million fee cut over five years. In April, Apollo Management okayed a $125 million cut over five years in fees in accounts the firm manages exclusively for CalPERS.