New Jersey gets reduced fees on $500 mln Benefit Street fund

  • $150 mln commitment offered for discounted management fee, carry
  • New Jersey negotiates 1 pct management fee, 13.75 pct carry
  • Also approves $100 mln for Warburg Pincus’s China fund

New Jersey Division of Investment’s large commitment to a new distressed-debt fund marketed by Providence Equity Partners’ credit arm will likely result in favorable terms for the the $73 billion pension system.

The State Investment Council approved a $150 million commitment to a new distressed-debt fund being raised by Benefit Street Partners, Providence’s credit affiliate, at its Sept. 28 meeting. The commitment remains subject to final negotiation of terms and conditions, spokesman Joseph Perone said.

New Jersey’s full commitment would put the firm well on its way to its $500 million target, which yielded an attractive discount on fund terms, a State Investment Council memo said. Benefit Street offered New Jersey a 1 percent management fee on invested capital. The firm will take 13.75 percent of the fund’s profits as carried interest after paying back all committed capital and clearing a 6 percent hurdle rate, the memo said.

Benefit Street will use the fund to acquire distressed assets in North America and other regions with “reliable legal systems,” according to New Jersey’s investment memo. Benefit Street is projecting that the fund will generate an internal rate of return in the 15 percent to 20 percent range, with a 2x-to-2.5x multiple on invested capital.

The firm’s 2008 vintage fund included a portfolio of distressed-debt assets that grossed a 21.9 percent IRR and 1.35x multiple on invested capital through Jan. 31, New Jersey documents said.

In addition to its commitment to Benefit Street, New Jersey’s investment council elected to move forward with a $100 million commitment to a new China-focused fund managed by Warburg Pincus. The firm set a $2 billion target for the fund.

That commitment is also subject to final negotiations, Perone said.

Warburg Pincus’s track record in China features “strong performance over a large number of investments,” New Jersey staff wrote in an investment memo. The firm’s portfolio of 67 Chinese investments netted a 17 percent IRR and 1.8x multiple on invested capital, according to the memo.

New Jersey held 9.2 percent of its assets in buyout and venture capital funds as of June 30, its most recent investment report said. The portfolio is valued at $6.7 billion.

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