TRENTON - The new chairman of the board that oversees New Jersey's $77 billion pension fund for public employees warned Wednesday against a bill passed by the Legislature that would expand pay-to-play restrictions on the state's investments, saying it would force New Jersey to sell top-performing assets at "disadvantageous prices."

Those remarks came as the state moved ahead with a $100 million investment in a fund controlled by a private-equity firm whose cofounder donated $2.5 million in the last two years to a Republican committee with close ties to Gov. Christie.

The State Investment Council's regulations prohibit investing state pension funds with firms whose investment management professionals have donated to New Jersey political parties and campaigns in the preceding two years.

However, that prohibition doesn't cover donations made to national political groups like the Republican Governors Association, which Christie chaired in 2014.

The bill passed by the Legislature would expand regulations to cover such groups.

"We would have to do substantial searches and look for all those political contributions and probably liquidate a lot of things, and in our best returning category of investments, at least in the last year or so," newly chosen State Investment Council Chairman Tom Byrne told reporters.

"We might have to not only liquidate assets that have helped us outperform our" expected return, "but we might have to get out of some of these things at disadvantageous prices," said Byrne, founder of Princeton-based Byrne Asset Management and son of former Democratic Gov. Brendan Byrne.

"If you're a forced seller, that's not so great," he added.

Byrne said he had explained the potential consequences to lawmakers but wasn't sure "that education process took place before the legislation was initially passed."

Public perception can't drive how New Jersey invests its pension funds, Byrne said. "Our job is to do right by the beneficiaries of the pension funds," he said. "No matter what you do, somebody's going to have a problem with it."

Asked by reporters whether Christie had ever suggested an investment, Byrne said, "Never."

"I have never, ever felt any political pressure on any investment," said Byrne, who has been serving as acting chairman and previously served as vice chair.

Private equity was the pension fund's best-performing asset class last fiscal year and has produced an average return of 15 percent over the last five years, said Christopher McDonough, director of the Treasury Department's Division of Investment.

However, New Jersey has underperformed its benchmark in that category, which posted average returns of 17 percent over the same time period, according to Treasury data. Investments in private equity also tend to cost the state high fees for outside money managers.

It isn't clear that the bill would prohibit the $100 million investment with KSL Capital Partners. The RGA donor, Michael Shannon, is cofounder and chairman of KSL Capital. But the firm doesn't describe Shannon as an investment management professional on its website.

A KSL spokeswoman said Tuesday that Shannon's donations, which he made with his wife, had "never been solicited by Gov. Christie nor anyone acting on his behalf."

State Division of Investment staff told the council that KSL - which invests in real estate, travel, and leisure businesses - had reaped attractive returns for investors.

Investing with the firm will open a market opportunity for New Jersey's pension beneficiaries in the travel and tourism sectors of the economy, staff said.

Byrne said the investment clearly did not violate council policy. "I even asked if our consultant was an RGA fund-raiser," he said during the meeting. "The answer was clearly no."

Also Wednesday, the council discussed an audit, completed by the Treasury Department, of the state's investment with a firm tied to a prominent Massachusetts Republican who had donated to the New Jersey GOP.

News reports revealed in May that Charlie Baker, then a gubernatorial candidate, donated $10,000 to the New Jersey GOP in 2011. Seven months after he made the donation, the state decided to invest $15 million in a fund controlled by General Catalyst Partners, where Treasury determined Baker was an investment management professional.

General Catalyst had said Baker wasn't an employee.

However, because Baker wasn't involved in managing New Jersey's funds, Treasury said the investment didn't violate state policy.

The state sold its interest in General Catalyst in September.

The audit raised questions about the investment council's policy regarding disclosure of political contributions, which relies on self-reporting.

The board's new vice chair, Adam Liebtag, said it should consider clarifying its rules, especially what constitutes an "investment management professional," to make them more coherent and less open to interpretation.

He also noted that Treasury began its review of the General Catalyst investment in May but didn't release its report until late January. Baker was elected governor in November, with help from the RGA.

"I'm concerned about the amount of time it took to get to this point," Liebtag said.

Byrne said he would form a committee to review the council's regulations and determine whether changes were needed.

At the beginning of the meeting, McDonough, the director of the Division of Investment, presented his proposed investment plan for fiscal year 2016, which begins July 1.

He recommended tweaks to the pension fund's asset allocations, but not a "dramatic shift."

For example, McDonough proposed modestly reducing the fund's investment in U.S. equity, noting that central banks in Europe and Japan were implementing more "accommodative" monetary policy than the Federal Reserve.

The investment council said it would consider McDonough's proposal at its next meeting, May 27.

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