(Bloomberg) New Jersey's pension fund should put more money in alternative investments such as private equity and real estate to boost returns and protect against stock losses, consultants told the State Investment Council.

The $68.3 billion fund should steer as much as 43% of its assets into alternatives, Strategic Investment Solutions said at the council's meeting today in Trenton. The panel voted to draft regulations that would let the fund put as much as 38% of assets into alternatives. The current limit is 28%, said council Chairman Orin Kramer.

"This would not necessarily increase New Jersey's exposure to any alternatives by a nickel," Kramer said. "It would simply give the council flexibility."

Council members today also elected a new chairman, Robert Grady, a former partner in the Carlyle Group. Grady, who was budget adviser on Governor Chris Christie's transition team, replaces Kramer, 65, general partner of New York-based hedge fund Boston Provident Partners LP, whose term expires today.

The panel authorized alternative investments in 2002 and had about $9.8 billion, or 15% of its portfolio, through August 31, according to a monthly investment report.

Investment Limit

New Jersey's current authorized limit on alternatives is the 18th-lowest among the 21 largest U.S. state pension funds, Pete Keliuotis, managing director of San Francisco-based Strategic, told the council.

"Over the past several years, alternative investments have significantly outperformed public markets on a risk-adjusted basis, and we believe they will continue to do so over the long term," Keliuotis wrote in a memo to the council.

The fund would realize an additional 30 to 50 basis points of investment gain annually, or anywhere from $210 million to $350 million, with "modestly higher risk," the report says. A basis point is 0.01 percentage point.

Over the past ten years, the fund has earned a 3% annualized return, compared to the 8.25% actuaries assume the fund will gain when they determine the system's funding adequacy, according to the investment report. Through June 30, 2009, the pension system was underfunded by $46 billion using that measure, and had 66% of the assets needed to fund promised benefits, according to Bloomberg data.

Through August 31, the pension fund was worth $68.3 billion, a gain of about $200 million since the start of the calendar year.

The state Treasury's Investment Division manages money for New Jersey's seven pension plans, which provide benefits to about 800,000 working and retired teachers, police officers and government employees.