New Jersey forms $105M fund of funds

New Jersey may have lost The Sopranos this summer, but it gained a new investment tool aimed at boosting businesses in The Garden State.

The state has committed $100 million to the New Jersey Direct Investment Fund (NJDIF), a $105 million fund of funds that the state launched to satisfy the twin goals of achieving high returns for its pension fund and promoting economic growth, according to William Clark, director of the New Jersey Division of Investment. Commitments from the fund are required to go to companies with headquarters or significant operations in New Jersey, or to companies willing to move to the state or expand operations there.

The investment came from the state’s $82 billion pension fund. Lehman Brothers is serving as general partner and contributed $5 million to the fund.

NJDIF is earmarked for small to mid-cap buyouts, growth equity and venture capital funds, as well as direct investments in companies issuing securities outside of a public offering. The program took roughly a year to plan and was born from discussions between the investment council and the state’s Economic Development Authority, which was looking to trumpet the low interest rates and tax incentives available for New Jersey-based companies. The investment division was already familiar with Lehman Brothers, having invested in the firm’s venture capital fund of funds in 2006.

Clark acknowledged that the results of other in-state economically targeted investment funds have been mixed, but he’s confident New Jersey can make it work. He cited California Public Employees’ Retirement System, which in 2001 launched a similar program, and which took some time to find its footing.

New Jersey’s alternative investment portfolio is still ramping up. The first foray into the asset class came in 2005, when it committed to funds managed by such firms as Apollo Management, The Blackstone Group, Oak Hill Capital Partners, Quadrangle Group and Warburg Pincus. The initial goal was to have 13% of its $82 billion portfolio deployed in alternative investments, with 5% in private equity by 2012, a target that’s likely to be hit in 2010 given the investment pace.

The state now has $4.8 billion committed to private equity and $1.3 billion invested, with average annual investment commitments running between $1.8 billion and $2.5 billion. Going forward, the state plans to direct more money to distressed operators. “Over the last year we’ve made a conscious effort to devote more attention and dollars to distressed and mezzanine funds, and I think that will continue,” with contributions to such firms as MatlinPatterson Global Advisors, Clark says. —Joshua Payne