New Jersey's pension fund overseers defended their investments in hedge funds, private equity and real estate even as lawmakers and public unions criticized the increasing fees paid to outside managers.

The $79.2 billion Trenton-based pension fund paid about $600 million in fees and incentives in fiscal year 2014, according to Tom Byrne, chairman of the state investment council. Most of that went to managers of alternatives.

“Is it all worth it?” state Sen. Paul Sarlo asked. During a Thursday legislative hearing on the investments and fees, Mr. Sarlo asked whether the money paid to Wall Street would be better left in the pension fund itself.

“It's a wise fee,” Mr. Byrne said. “You have to look at it in the context of profits generated by those fees.”

Chris McDonough, director of the New Jersey Division of Investment, said that although management fees and incentives are higher for alternative investments, they are offset by greater gains. The holdings outperform cash, stocks and bonds over a long period, Mr. Byrne said.

As of March 31, the one-year return for the alternatives was 9.7%, compared with 7.3% for the total pension fund, according to a report from the investment division.

“A lot of these investments, hedge funds in particular, happen to do well when market volatility is high,” Mr. Byrne told the Senate Legislative Oversight Committee.

Alternatives in 2006 represented less than 5% of pension fund assets and fixed income was about 25%. In 2014, the asset class was about 27%, while fixed-income holdings were less than 15%.

Public unions have objected to alternative investments, saying managers are putting their members' retirement income at risk.

Jeff Hooke, managing director of Focus Securities, called the fees a “bad deal.” In a report commissioned by the New Jersey state AFL-CIO, Mr. Hooke found the pension fund's costs for managers had more than quadrupled since 2010, and totaled $1.5 billion over five years.

“Fees are going to drag down returns for your client,” Mr. Hooke told lawmakers. He has performed studies for the Maryland Public Policy Institute that found states didn't get higher returns from high-fee investments.

In New Jersey, such costs represented 0.74% of pension assets for fiscal 2014, higher than the median 0.51% paid by California, Delaware, Maryland, Massachusetts and Virginia, according to Mr. Hooke's report.

Comparisons of fees paid by other large pension funds aren't valid “because there is no standard or consensus” on how they should be measured, Mr. McDonough said. Pension funds like New Jersey that are more transparent than others appear to pay higher fees, the investment division report said.