New Jersey cancels Advent commitment over terms

  • New Jersey cancels $100 mln commitment to Advent’s Fund VIII
  • Pension, manager couldn’t agree on certain terms
  • Advent dropped preferred return from Fund VIII

New Jersey’s state pension system scrapped a proposed $100 million commitment to Advent International’s eighth flagship fund after failing to agree with the manager on certain terms.

The decision to back away from the commitment was highlighted in a notification in the board packet from the May 25 State Investment Council meeting.

According to the notice, “during the course of the negotiations, the [investment division] and the fund were unable to reach agreement on the terms of the legal documents. After a number of conversations with senior officers at the fund, it was decided by both parties in March to cease negotiations.”

It’s not clear which terms caused the pension to abandon the commitment, which its investment staff approved, pending legal negotiations, last year.

Joseph Perone, spokesman for the state treasurer’s office, and Erin Smith, spokeswoman for Advent, declined to comment.

Some LPs were upset with the firm last year for dropping its traditional 8 percent preferred return in Fund VIII.

“Hate it, but that is the funding environment we are in and high-quality managers have the ability to drive terms,” an LP previously told Buyouts about Advent dropping the hurdle.

New Jersey State Investment Council member James Hanson questioned the fund’s lack of a preferred return during the investment council meeting Nov. 18, 2015, according to meeting minutes.

Michelle Davidson, a managing director with New Jersey’s private equity consultant, TorreyCove Capital Partners, said at the meeting that the fund had other mechanisms to protect investors against excessive distributions to the manager.

One of the mechanisms in Fund VIII is the European waterfall distribution structure, in which a GP must pay back all of a limited partner’s contributed capital before starting to collect carried interest.

Fund VIII closed on $13 billion in March, beating its $12 billion target.

New Jersey’s Division of Investment approved the $100 million commitment last year and informed the investment council in November. The division touted Advent’s strong track record, ability to invest in various geographies and experienced global team, according to an investment report from the pension system.

Update: This story was updated with information that Advent closed Fund VIII on $13 billion in March.

Action Item: New Jersey’s monthly investment report: