New Jersey Division of Investment plans to commit about $1.5 billion to private equity in 2021, and steadily raise the commitment levels to about $2.375 billion by 2028, according to a consultant’s presentation to the state investment council last week.
Last year New Jersey hiked its private equity and private credit targets, as Buyouts reported. Private equity went up from 12 percent to 13 percent, while private credit went up from 6 percent to 8 percent. New Jersey’s consultant for both asset classes is Aksia TorreyCove.
As of February 28, the private equity program took up 10.91 percent of the $85 billion pension system’s total assets. Private credit made up 6.95 percent of the assets.
Aksia’s Michelle Davidson stressed it would be important to maintain a steady commitment pace going forward.
“There is some cyclicality to private market returns, and given the multi-year investment periods, the best results are maintained typically by having a smoother commitment pace versus having large spikes in commitment either upward or downward,” Davidson said. “A measured increase in commitments over time will minimize disruption of the positive net cash flows from the program.”
The range for 2021’s commitment target is at least $1.35 billion and a maximum of $1.65 billion. Aksia recommended New Jersey’s total PE commitments rise in $125 million increments from 2021 to 2028 before arriving at the $2.375 billion target for the final year.
Since commitments will be increased over the next few years, the private equity program’s net cash flows will decrease over the next few years but are still expected to remain positive.
The target commitment level for private credit in 2021 is $1.3 billion. The Aksia projection called for a more gradual hike to this asset class, calling for it to rise by $200 million to $1.5 billion in 2022, but not rise again until 2024, when it goes up to $1.75 billion. By 2028, the target commitment level is $1.95 billion.
“This is meant to be a dynamic exercise,” Davidson told the council March 24 meeting. “We do update it at least once a year, and in periods of market disruption like we experienced last year when the covid pandemic first hit, we do assess the pacing more often throughout the year.”
Action Items: read New Jersey’s most recent investment report here.