New Jersey goes big with Blackstone

The New Jersey State Investment Council will move forward with more than $1 billion of new commitments to the Blackstone Group, including $750 million to separate accounts, according to spokesman Chris Santarelli.

The council approved $250 million to a Blackstone Tactical Opportunities account that will invest “across asset classes, capital structures, and geographies” at its Jan. 29 meeting. Another $350 million went to two accounts managed by the firm’s credit arm, GSO Capital Partners, for investments in credit, with an emphasis on energy-related credit. The $80 billion retirement system allocated another $150 million to a core-plus real estate fund managed by Blackstone.

Blackstone offered the $80 billion retirement system “favorable terms” on the accounts, including discounted fees, according to meeting materials. It is unclear what the management fee will ultimately amount to for the tactical opportunities commitment, given its broad strategic mandate. The fee will range between 1 percent and 1.25 percent, depending on investment type, according to a New Jersey investment memo.

The firm also pledged “sizable” GP commitments alongside each of New Jersey’s accounts, providing between 1 percent and 2 percent of the investment capital to each of New Jersey’s separate accounts, according to investment memos. Some terms are still subject to negotiations, Santarelli said via email.

New Jersey will also maintain the right to veto proposed investments made through some of the accounts, which will give the pension system the ability to manage its exposure to risk and control the pace of investment, as well as “ensure that the Division continues to receive the highest level of attention on an ongoing basis.”

Blackstone spokesman Peter Rose could not be reached for comment.

Greater access

New Jersey staff will gain access to “the senior investment professionals and intellectual capital of Blackstone and its affiliates on a global basis,” which will support its broader investment efforts, according to a New Jersey investment memo obtained.

The Garden State “will access intellectual capital through frequent interaction with the senior investment professionals about current market environment and trends; as well as (get) access to detailed investment memos. This access will help in evaluating new investment opportunities and teams in the broader portfolio,” Santarelli said in an email.

The retirement system already has a longstanding and strong relationship with the $290.4 billion asset manager. Not including its most recent commitment, Blackstone manages more than $4 billion on behalf of New Jersey, including $1.95 billion for a strategic partnership established in 2011. That partnership – which spans investments in energy, credit, special situations and other strategies – netted the retirement system a 1.4x multiple and 28.1 percent IRR.

Several of Blackstone’s key executives have given public presentations to New Jersey’s investment council in the last two years, including firm co-founder Stephen Schwarzman, GSO Energy Managing Director Dwight Scott, and Jonathan Gray, who heads Blackstone’s real estate team and is widely considered a frontrunner for a more senior role once Schwarzman or firm President Tony James retire.

“New Jersey has been a long term and terrific partner to Blackstone, investing across our firm and in our real estate business,” Gray told the State Investment Council in July. “We really appreciate that.”

In addition to its separate accounts, New Jersey approved four commitments to private equity and real estate funds currently being marketed by the asset management firm. The retirement system committed $100 million to Blackstone Real Estate Partners, $50 million to Blackstone Property Partners, $100 million to Blackstone Energy Partners II and $50 million to Blackstone Capital Partners VII.

Blackstone is targeting between $7 billion and $8 billion for its latest Tactical Opportunities Fund, which will be raised through a combination of separate accounts and commingled vehicles for smaller investors. Limited partners include the Oregon State Treasury and the California Public Employees’ Retirement System.