New Jersey’s government-worker pension fund investments fell short in the fiscal year that ended in June.

The pension fund returned 6.27 percent, trailing the 7.5 percent the pension system assumes it will earn on investments over the long term.

But going back to how it’s performed yearly over 10 years and 25 years, the pension fund remains above the assumed rate of return the state uses to calculate how much money will be needed to pay out benefits to nearly 800,000 active and retired workers.

The public pension fund is among the worst-funded in the U.S. but has been improving as the state increases how much money it contributes each year. Investment earnings play a big role in the health of the fund, as well.

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Investment-grade credit and real estate were “bright spots” in the performance of the pension fund’s portfolio last year, Division of Investment Director Corey Amon told the State Investment Council Wednesday. Investment-grade credit returned more than 10 percent and real estate was up 8.7 percent, according to Division of Investment reports.

Private equity, part of the state’s alternative investment program, returned 10 percent. It has in recent years been the fund’s best-performing asset class.

U.S. equities were up 7.85 percent but suffered somewhat because the pension fund’s U.S. equities portfolio focused on small cap stocks, which underperformed, and value stocks while holding fewer growth stocks that actually did better than expected, Amon said.

“More recently,” he added, “during fiscal year 2020 and consistent with the approach taken by similar funds, the Division of Investment took a series of steps to materially reduce the active risk in the U.S. equity portfolio. Going forward, this more passive approach will result in U.S. equity returns more closely linked to the returns for the benchmark index.”

The 6.27 percent annual return is calculated after taking into account fees and bonuses paid to outside investment managers. The Division of Investment typically reveals the final tally of fees and bonuses in its annual report released the following spring.

From the July 1 start of this fiscal year to Aug. 31, the pension fund has seen a negative return of -0.69 percent.

Shortly before leaving office, Gov. Chris Christie lowered the assumed rate of return from 7.65 percent to 7 percent. Gov. Phil Murphy reversed course, citing the hardship that placed on the state and local governments, which would have had to come up with another $700 million in pension contributions.

Murphy set the assumed rate of return at 7.5 percent, putting in place a plan to gradually reduce it to 7.0 percent in 2023.

Samantha Marcus may be reached at smarcus@njadvancemedia.com. Follow her on Twitter@samanthamarcus. Find NJ.com Politics on Facebook.

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