NJ Division of Investments Reduces Portfolio Allocations, Ramps Up Cash Holdings

By Mario Marroquin

Worsening market liquidity and a desire to reduce risk prompted the New Jersey Division of Investments to increase its cash holdings above its 5% allocation target at the end of H1 2022. According to Shoaib Khan, the retirement system’s chief investment officer, the public pension fund is executing on a defensive strategy first implemented earlier this year and amidst losses across the pension’s equities, income and defensive allocations.  

The pension system’s cash position is one of the largest among public pension funds and will likely be watched closely by other pension funds that may want to take advantage of rising interest rates for cash and treasuries.

“In a rising interest rate environment, the higher cash position has allowed us to have increasingly positive returns on that portion of the [portfolio] holdings,” Khan said at the New Jersey State Investment Council meeting held October 26. “At the same time, we maintain a portfolio with a good liquidity profile during periods of worsening liquidity.

“This also gives us dry powder to be deployed in the future when opportunities become available.” 

Rising returns on short-term securities such as money-market instruments are concurrent with the Federal Reserve’s hike in interest rates.  

Meeting materials from October 26 said the $93 billion assets under management pension scheme held a 9.22% allocation to cash and equivalents – over twice the stated target policy of 4% –- at the end of June. Meanwhile, the system’s U.S. equity, non-U.S. developed market equities and real estate allocations were below policy targets by at least one percentage point.

Khan said the increased cash holdings have allowed the pension system to not convert unrealized losses to realized losses due to liquidity constraints. 

But meeting materials said the state pension system saw net returns of negative 7.90% at the end of June. 

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