The New Jersey Division of Investment has earmarked a total of $500 million for three new funds earmarked for investments in Asia and for co-investments alongside general partners. The new funds were created to give the limited partner the ability to put capital to work quickly, and in a more targeted fashion.
One vehicle will invest solely in Asia, while the other two funds come in the form of a main tranche and a sidecar vehicle that will allow New Jersey to pursue co-investments. During the next few months, the $82 billion public pension fund will also consider becoming more active in clean technology, energy and distressed opportunities as it charts its investment course for fiscal year 2009. “As we look across the whole program, what we’re trying to do is set up an internal infrastructure that allows us to be more nimble and respond to market opportunities quicker than we have in the past. That’s a structural change we’re trying to implement here,” said William Clark, director of the New Jersey Division of Investment. By launching an Asia fund and a co-investment vehicle, the LP continues to diversify its portfolio and give itself more flexibility in deploying capital.
The Garden State has committed $100 million to NJ Asia Investors Fund I LP, a vehicle designed to seek out investment opportunities in private equity funds focused on Asia. Funds-of-funds manager Asia Alternatives Management LLC, which has offices in Beijing, Hong Kong and San Francisco, will manage the fund in a discretionary capacity, with investments likely mirroring those of the firm’s funds of funds. The fund represents New Jersey’s first exposure to the region and may serve as a springboard opportunity to make direct investments in the future, according to the proposal on the state’s Web site. NJ Asia Investors Fund I LP would make make $5 million to $20 million commitments in each of seven to 15 general partners over the next two to three years.
New Jersey also set aside $200 million apiece for SONJ Private Opportunities Fund II LP and SONJ Side Car Fund I LP, both to be managed by New York-based investment firm BlackRock. The main fund will deploy capital in bites of $10 million to $20 million, directed at least 80 percent toward buyout funds, with a potential 20 percent funneled into late stage venture capital commitments. At least half of that fund will go toward North American commitments, and the remainder will be deployed in Europe. SONJ Side Car Fund I LP will give New Jersey the ability to take larger capital positions in deals the LP finds appealing. The sidecar fund will invest equity slugs up to $60 million in co-investment deals alongside general partners already in New Jersey’s portfolio, general partners already affiliated with BlackRock as well as GPs new to both the state and BlackRock. New Jersey must approve any sidecar fund co-investments made by BlackRock, and the management fee and caried interest are half the amount charged for the SONJ Private Opportunities Fund II LP.
This is the second time around for New Jersey and this fund manager. The state’s prior vehicle, the $100 million SONJ Private Opportunities Fund I LP, was guided by Merrill Lynch Investment Management. In 2006, MLIM merged with BlackRock, and the same team is in place managing the new fund for New Jersey, Clark said.
The new vehicles come on the heels of another targeted fund. Last year, the state ponied up $100 million to launch the New Jersey Direct Investment Fund. Lehman Brothers kicked in an additional $5 million and serves as GP for the vehicle, which being invested in companies that are based or have significant operations in New Jersey.
The state’s private equity program is still ramping up; the LP made its first commitment to the asset class in 2005. Since then, it has committed a total of $6 billion to private equity and will continue to put roughly $2 billion in the space each year until the state hits its target allocation of five percent, Clark said. At the moment, New Jersey has about 1.5 percent of its assets in private equity and has committed to such firms as Apollo Management, Blackstone Group, Oak Hill Capital Partners, Quadrangle Capital Partners and Warburg Pincus.
The state’s division of investment is reviewing requests from existing GPs looking for new commitments, and the investment professionals in Trenton are thinking about committing capital to new places in preparation for July, the beginning of fiscal year 2009. The LP plans to invest more in the middle-market space as well as clean technology, energy and possibly infrastructure funds, said Christine Pastore, who runs the division of investment’s private equity arm.
The state may also continue its support of distressed managers. Distressed funds it has backed include Avenue Special Situations Fund V LP, KPS Special Situations Fund III LP, MatlinPatterson Global Opportunities Fund III LP, Wayzata Opportunities Fund II LP and WLR Recovery Fund IV LP.