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New Jersey council debates authority over investment decisions

The regulations include a proposal to streamline the commitment process, which drew concerns from at least one council member.

New Jersey’s State Investment Council tabled a proposed slate of regulations last week after one member expressed concerns about whether it was giving up too much oversight over commitments made by the state’s Division of Investment.

According to a memo provided to the council, the proposed change to the rules would apply to investments of $50 million or more. It would allow the division to commit the funds if it provided the council with a report by its next scheduled meeting.

This would be a change from the current procedure, which requires another body, the Investment Policy Committee, to provide a report to the council before any binding commitment is made.

The memo said this would provide the division with “greater flexibility” to make attractive commitments and make manager deadlines.

Neither the council nor the committee actually has the power to approve a commitment – that power rests with the division, and ultimately with director and chief investment officer Corey Amon.

Member Eric Richard said he was already concerned about the council’s lack of direct authority on what commitments the fund makes.

“I just feel like this is a step in the opposite direction,” Richard said at the council’s January 27 meeting.

Amon said the goal of the change was to increase oversight by allowing the investment committee to meet more often and see more non-public information on the due diligence process. While the council’s meetings are public, the committee’s are not.

In an interview with Buyouts, Richard, who is also the legislative affairs director for the New Jersey State AFL-CIO, said his words did not reflect frustration with staff, whom he said did an “excellent job.” But, some of the unions representing pension participants have ongoing concerns about the council’s lack of direct authority.

“There is a misconception particularly among constituencies outside of the State Investment Council that somehow the members of the council make these decisions, and we do not,” he said. “That’s frustrating for a lot of folks because they feel that we are the people that represent them, the pensioners, and that’s not the reality.”

Richard said the concerns stem from a debate over the Division’s hedge fund portfolio, which resulted in it getting cut in half in 2019, according to Chief Investment Officer. Richard supported that move at the time.

“Growing out of that movement to cut the hedge funds is a perception by certain members of the board that we need to have actual votes on investments,” Richard said.

Richard added there was state legislation to provide some of those types of powers, but it has not advanced.

At the January 27 meeting, council ended up moving into executive session to further discuss the new regulations. Afterwards, it voted to table them until the next meeting.

A Division of Investment spokeswoman declined to comment on Richard’s position.

Other changes

There are several other new proposed regulations that would effect the fund’s $9.2 billion private equity portfolio and $5.8 billion private credit portfolio.

First, the regulations would update the term “global diversified credit” to “private credit.” It would also include private credit investments made through separate accounts, funds-of-funds, commingled funds and co-investments under the overall allocation limit for alternative investments.

Next, the maximum allowable ranges for both private credit and private equity would rise from 10 percent to 13 percent and 15 percent to 18 percent, respectively.

This follows the fund’s decision last year to raise the overall targets in both asset classes, as Buyouts reported.

The regulations would also simplify and expand the definition of “private equity,” subsuming sub-categories like buyouts, venture capital and debt into private equity. It would also expand the definition to include investments in “a trustee, general partner, or managing member of a fund” as permissible.

This would also allow the fund’s investments with Dyal Capital Partners, a division of Neuberger Berman dedicated to investments in private equity firms, to be moved from the “Opportunistic Investments” category to the private equity category.

New Jersey also has stakes in Owl Rock Capital Partners, as Buyouts has reported. Dyal and Owl Rock recently announced they were merging to become a publicly-traded entity called Blue Owl, according to sister title PE Hub.

The New Jersey State Investment Council’s next meeting is scheduled for March 24. The Division of Investment’s total value as of December 31 was $84.6 billion.

Action Item: read New Jersey’s most recent investment report here.