How NJ Governor Chris Christie Pissed Away $3.8 Billion In Taxpayer Money
It’s a familiar story.
New Jersey’s pension fund is underfunded and needs to be redirected into higher returning investments to fill the gap, so New Jersey Governor and 2016 Republican Presidential hopeful Chris Christie put it in the hands of Robert Grady, an executive with years of private equity experience. Grady oversaw a strategy of placing the funds in higher risk investments with higher fees that should produce the yield necessary to maximize returns.
That was in 2010.
In the four years since, the yields have been consistently below the average for similar sized investment funds. That shortfall has cost New Jersey billions of dollars per year in unrealized gains and left the pension fund on even shakier ground than before. Meanwhile, the state has been paying a quarter of a billion a year in management fees to Wall Street firms. It should come as no surprise that Wall Street in turn, was a major supporter of Christie’s reelection bid in 2013.
It’s not like nobody saw this coming. In 2011, Jim Marketti – one of the few State Investment Council members to vote against the plan – warned the plan would generate,
“a roller coaster ride on which only the Wall Street professionals and insiders are the winners.”
Looking back, Marketti said,
“All the leading players on the [New Jersey State Investment Council] were from the alternative universe and all of their decisions were driven by a political agenda and an investment ideology which had no relationship to facts on the ground. And the facts were that you simply couldn’t justify these investments on the basis of what they cost in fees to generate a dollar of new returns.”
Over the last four years, the combination of higher fees and sub par performance has cost the state roughly $3.8 billion. At the same time, Christie chose not to make the $2.43 billion in payments to the system as scheduled.
Most of the money sent to Wall Street was of the vague, “go forth and multiply” sort, given to funds to invest wherever they see their best return. Some of it, however, was more targeted.
$200 million in state pension funds were invested in Canyon Capital Advisors which owns a stake in Revel Casino. Late last year, the state doubled down with an additional $300 billion invested in Chatham Asset Management, a hedge fund which owns a majority share (28%) in the project. That’s $500 million for a share in a casino that some experts value at between $75 and 100 million though it could be a bit more. The casino has announced it will close next month.
While Christie lauded the investments as job producers and good for New Jersey, it did not take a great amount of foresight to see that it was a bad deal. In 2011, Trump Marina Casino sold for $38 million. In 2013, Trump Plaza sold for $20 million. In June of this year, Atlantic Club Casino sold for $13 million. Now the Showboat Casino in also set to close if a buyer cannot be found. Assume its value to be in the same range. That’s four casinos that could be purchased outright for $100 million, instead of $500 million for a share in a single one.
I fully expect, now that it’s complete, somebody will sweep in and buy Revel for pennies on the dollar of what it cost to build. In so doing, somebody will reap a nice investment that will payoff for years to come. But it won’t be the people of New Jersey, and it won’t be the workers whose pensions were gambled on a longshot that nobody that was paying attention ever expected to succeed.
Remember all this the next time you hear Social Security is broken, or that we need to move that money into investments where it can draw a higher yield.
Or when Chris Christie begins a 2016 presidential bid and claims to represent “fiscal responsibility.”
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