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NJ approves $300 mln separate account tagged for distressed assets; to pay just 17% carry

  • Forms $300 mln account with GoldenTree
  • Re-ups $200 mln to American Industrial Partners
  • NJ to commit $1.5 bln to PE in FY2016

The New Jersey Division of Investment is continuing effort to reduce costs and boost returns through separate accounts with the formation of a new vehicle designed to invest in distressed assets.

The Division of Investment has secured “attractive market terms” on the account, managed by GoldenTree Asset Management, according to state documents. Should it finalize its $300 million commitment, New Jersey would pay a 75 basis point management fee on invested capital. In addition, GoldenTree would collect a 17 percent carried interest, according to state documents.

The State Investment Council, which supervises the state’s investment staff, decided to move forward with the $300 million separate account with GoldenTree at its July 22 meeting, spokesman Chris Santarelli told Buyouts in an email. The account remains subject to legal negotiations.

New Jersey has aggressively pursued separate accounts with its core managers in recent years as a way to negotiate lower management fees in exchange for larger commitments. Blackstone Group now manages more than $4.5 billion of the state’s $79.15 billion investment portfolio through several separate accounts and co-mingled structures. The Division of Investment also has formed separate accounts with asset management firms like BlackRock and Och-Ziff Capital Management.

The state’s latest commitment includes $200 million to invest alongside GoldenTree’s 2014 distressed fund, with an additional $100 million held in reserve for overages and other distressed opportunities, according to state documents.

GoldenTree intends to invest New Jersey’s account in distressed and stressed assets within the corporate and structured product markets in the United States, Canada, the United Kingdom and Western Europe, according to state documents. The account will target mid-to-high teen net returns.

The GoldenTree separate account will account for roughly 20 percent of the capital New Jersey plans to allocate to private equity over its 2016 fiscal year, which kicked off on July 1.

To commit about $1.5 bln over fiscal year

All told, New Jersey plans to commit $1.5 billion or so to the asset class over its next fiscal year, according to July meeting materials.

The Division of Investment has already made serious headway on that pace with its July 22 commitments.

In addition to its new account with GoldenTree, the investment council voted to move forward with up to $250 million in new commitments to funds being raised by American Industrial Partners and Excellere Partners, Santarelli said in an email. Both commitments remain subject to legal negotiations.

New Jersey plans to commit up to $200 million to American Industrial Partners’s sixth flagship fund, which is targeting $1.75 billion for investments in North American industrial businesses. New Jersey previously committed $50 million to the firm’s fifth fund, a 2011 vintage vehicle that generated a 23.31 percent net IRR through March 31, according to state documents.

The state earmarked up to $50 million for a commitment to Excellere Capital Fund III, a lower-middle-market fund that will be invested in North American companies in the business services, energy services, healthcare, industrial technology and service industries, according to state documents.

Excellere has set a $550 million target for Excellere Capital Fund III. The firm’s previous fund, a 2011 vintage pool, produced a 45.89 percent net IRR through March 31, according to New Jersey documents.

New Jersey valued its private equity portfolio at $7.2 billion as of May 31, according to state documents. As of March 31, the portfolio has netted an 11.1 percent return since inception.