New Jersey pension funds split, create a $26 bln LP

New Jersey’s Police and Firemen’s Retirement System

  • Assets under management: $26 billion
  • Why this is important: Private equity portfolio formation will depend on Gov. Murphy’s plans for this asset class

New Jersey’s Police and Firemen’s Retirement System is set to become a $26 billion institutional investor after Gov. Phil Murphy signed a bill handing the pension fund over to its union to manage.

The new 12-member New Jersey PFRS board will assume charge in February 2019 and take complete control of the pension system on or about July 4, 2019.

The board will select a chief investment officer, executive director and staff members that will run the investment office.

Under the new bill, the state treasurer will set the PFRS’s rate of return and the pension board will set the fund’s internal target, documents said.

New Jersey PFRS is currently part of the $77.34 billion combined state system managed by the Division of Pensions and Benefits. The State Investment Council and Division of Investment are responsible for its allocations.

Other funds within the system include Public Employees’ Retirement System, Teachers’ Pension & Annuity Fund, State Police Retirement System, Judicial Retirement System, Prison Officers’ Pension Fund and Consolidated Police & Firemen’s Pension Fund.

It is unclear how big New Jersey PFRS’s private equity portfolio will be and what manager relationships will transfer to it, a GP with commitments from the state pension fund said.

The future of the New Jersey state pension’s $7 billion PE portfolio has been uncertain since Murphy assumed office this year. Murphy, a Goldman Sachs alum, argued that the steep fees PE firms charge aren’t worth the risk.

The state’s alternative-investment program paid more than $392 million in fees and expenses to private equity, real estate and other alternative-investment managers during the previous fiscal year, according to its annual report.

But New Jersey’s private equity portfolio returned 14.97 percent over one year, 13.39 percent over three years and 14.75 percent over five years as of March 30, 2018. It is the top-performing asset class in the portfolio.

New commitments were halted briefly while the Division of Investment waited for clarity from Murphy. The pension fund made a recent commitment of $300 million to Vista Equity Partners’ seventh flagship fund, which is targeting $12 billion.

The PE portfolio includes buyouts/venture capital, debt-related private equity and opportunistic private equity and has a current allocation of 9.26 percent vs a target of 8.25 percent.

The slower pace of new commitments will bring the PE portfolio in line with the target for the asset class this year, documents said.

The pension fund had investments in 115 limited partnerships and co-investment vehicles, as of June 30, 2017, pension documents said. It committed a total of $886 million to six new private equity partnerships in fiscal 2017, the documents said.

New Jersey PFRS campaigned for almost four years to be allowed to manage its own money. A key worry was that its plan would be pooled with other pension funds to bail them out.

The PFRS is 73.1 percent funded, significantly higher than New Jersey’s state-funded ratio of 31 percent.

New Jersey State Investment Council did not respond to a request for comment Friday

Action Item: Read more on the bill here