Distributions Picking Up, N.J. To Start Pledging Again

The New Jersey State Investment Council, which manages $67 billion for the state’s pension funds, will likely pledge $700 million to $1 billion to private equity over the next 12 to 15 months, said Head of Private Equity Christine Pastore at a recent conference. The state has not made a commitment since November 2008.

New Jersey committed a little more than $2 billion to private equity in 2008, with $600 million of that going to separate-account managers that, in turn, expected to commit to funds over a two to three year period, as previously reported in Buyouts.

The $4.5 billion of unfunded commitments the limited partner has outstanding are “going out slowly,” Pastore said, which is why the pledge pace also needed to slow. But she pointed out that because the pace of distributions has “picked up dramatically,” the pledge rate could accelerate as well.

The private equity program’s anticipated commitment pace is significantly lower than in the past, in part because the pension fund has a monthly cash outflow of $500 million. “We need to be very liquid all the time,” said Pastore. Thus, if the LP increased its illiquid asset base, it could be difficult for it to fund its pension liabilities, she noted.

Pastore indicated that New Jersey will be “very selective” in making pledges and will probably end up consolidating relationships with general partners. She’ll also be focusing on how general partners manage through this cycle and will look more closely at how they are compensated internally.

LPs will “get together” on transaction and monitoring fees, she believes, saying that “transaction fees are a thorn in my side, but monitoring fees are a knife in my head.” However, because LPs often have differing agendas regarding partnership terms, getting a pool of them to agree will be “like herding cats,” said Pastore.

The state has a target allocation to private equity of 5.5 percent, with a cap of 7.0 percent. The current allocation stands as 5.4 percent, she said.

In other news, the state recently began a search to replace William Clark, former director of the division of investment. Clark left to become the senior vice president and CIO at the Federal Reserve System’s Office of Employee Benefits, starting on March 1. At his new post, Clark oversees investment strategy and manages $11 billion of assets for the Federal Reserve’s retirement and thrift plans.