N.J. confirms sale of controversial venture-capital fund

TRENTON - The director of the agency that manages New Jersey's $80 billion pension fund confirmed Tuesday that the state had sold its stake in a fund managed by a venture-capital firm with ties to a prominent Massachusetts Republican, months after the investment drew scrutiny over pay-to-play concerns.

The state earlier this month sold its interest, valued at $12.7 million, in General Catalyst Group VI for $14.1 million in cash to Washington University in St. Louis, the Treasury Department said. That's a 46 percent return on the state's $9.6 million investment.

The sale was a "great outcome for this investment," Christopher McDonough, director of the New Jersey Division of Investment, said during a regular meeting of the State Investment Council.

The state approved the investment in the venture-capital fund, managed by General Catalyst Partners, in 2011. Months beforehand, Charles Baker, a Massachusetts gubernatorial candidate who is an executive-in-residence at General Catalyst, had contributed $10,000 to the New Jersey GOP.

After news reports disclosed the donation, the Treasury Department's chief auditor in May began reviewing whether the investment violated the council's pay-to-pay regulations.

The council, which oversees the management of the pension fund, prohibits the state from investing with firms whose investment managers have donated to New Jersey political parties or committees in the preceding two years.

McDonough said the review was "in progress," and two council members urged that it continue to its completion.

General Catalyst has said Baker is not involved in investment decisions, so was not required to disclose his donation.

The firm has said that Baker, as an executive-in-residence, offers executive and operational expertise. He also sits on the boards of two health-care companies in which the fund had invested, according to the firm.

Gov. Christie, a Republican, campaigned for Baker in 2010. Baker lost that race to Massachusetts Gov. Deval Patrick and is now running to succeed the Democrat.

Baker's campaign has said he did nothing wrong. "We are pleased that this matter appears to have been resolved," campaign spokesman Tim Buckley said in an e-mail Tuesday.

A General Catalyst spokeswoman said Tuesday in an e-mail that the company was "pleased that the purchase of the State Investment Council's fund commitment resulted in a positive outcome and a significant profit for New Jersey pension beneficiaries."

Also during Tuesday's meeting, board members defended the state's practice of paying high fees to the private managers who invest pension funds in hedge funds, venture capital, real estate, and "alternative investments."

The Inquirer, citing state documents, reported in August that the state paid more than $410 million in fees to these managers last year. That's a big change from a decade ago, when New Jersey first waded into alternative investments. Before 2005, the state spent less than $10 million a year managing pension investments.

McDonough said he believed New Jersey spent less on fees than its peers.

"I hope we pay more fees," said council member Guy Haselmann. In addition to management fees, the state also pays incentive fees.

"I don't mind paying somebody an incentive after they've made me money," Haselmann said. "You're hiring somebody who is truly an expert in a certain area to pay for that expertise."

The pension fund netted a return of 16.9 percent for the fiscal year that ended June 30, outperforming the state's investment target of 7.9 percent, according to Treasury data.