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New Jersey bets $300 mln on Asia with separate account

  • $74.2 bln pension re-ups with Asia Alternatives
  • New $300 mln account divided between co-investments, fund of funds
  • Also backs Tenex’s second fund for up to $100 mln

The New Jersey State Investment Council elected to move forward with up to $400 million of new private equity commitments at its January 27 meeting, including up to $300 million to a separate account with Asia Alternatives.

The State Investment Council, which oversees New Jersey’s $74.2 billion pension system, also approved a commitment of up to $100 million to Tenex Capital Partners II. New Jersey’s new commitments remain subject to final negotiations with the firms.

New Jersey will divide the new Asia Alternatives account into two $150 million pools, according to pension documents. The first will invest pro-rata alongside other Asia Alternatives fund of fund vehicles, which typically back private equity and venture capital firms in China, Japan, South Korea, Southeast Asia, Australia and India.

The remaining $150 million will go to a co-investment pool for which Asia Alternatives will not charge fees or collect carried interest.

New Jersey Division of Investment staff expects the co-investment pool’s favorable terms to bring down the overall cost of the new separate account. Assuming Asia Alternatives fully invests the co-investment pool, staff projects the $300 million account’s blended management fee to average approximately 0.2 percent annually over the course of its fund life, according to state documents.

Asia Alternatives will also provide a 1 percent general partner commitment to the new account.

“These are very good terms,” said SIC Chairman Tom Byrne at the meeting.

New Jersey began investing in Asia Alternatives separate accounts in 2008. Its first account netted a 34.3 percent internal rate of return and 3.06x multiple as of June 30, according to an investment memo. The first tranche of a 2011 re-up netted 21.5 percent and a second tranche, marked as a 2013 vintage, netted 8.4 percent.

New Jersey’s commitment to Tenex Capital Management is also a re-up. Tenex set a $600 million target with a $750 million hard cap for its second fund.

Tenex’s previous fund, a $452 million 2011 vintage, netted New Jersey a 16.1 percent internal rate of return and a 1.4x multiple through September 30, according to an investment memo.

Fund II LPs will pay a 2 percent annual management fee for the fund, according to New Jersey documents. Tenex will take 20 percent of the vehicle’s profits over an 8 percent hurdle rate.

New Jersey valued its private equity portfolio at approximately $6.5 billion as of November 30, according to pension documents. The portfolio returned a 1.44x multiple since inception.

In addition to its commitments to private equity, New Jersey State Investment Council also greenlit a $100 million commitment to Blackstone Group’s third real estate debt fund. The firm set a $4 billion target for the fund.

Action Item: For more information about New Jersey’s investment portfolio, visit http://bit.ly/1nRvhpe