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NJ Rescinds One Pledge, Trims Two Others

In light of a shift in strategy dictated by its recently approved 2009 investment plan, the New Jersey State Investment Council has withdrawn a pledge to a sponsor of large European buyouts. It will also lower a pair of commitments to a U.S. mega-fund manager, taking advantage of concessions offered by the general partner.

The state made its pledge of $50 million to Charterhouse Capital Partners IX LP, the European buyout fund, in November, but it’s since changed its mind, citing the new investment plan adopted at its December council meeting. The plan calls for a slowdown in new commitments to private equity, real estate and hedge funds; a greater focus on credit-related opportunities in private equity and real estate; and an interest in purchasing alternative investments in the secondary market.

The plan anticipates commitments to new funds for 2009 are likely to total between $500 million and $750 million. In contrast, the limited partner made a little over $2 billion in private equity commitments in 2008, although $600 million of that represents pledges to separate accounts that, in turn, will commit to underlying funds over a two-to-three year period, said Tom Vincz, spokesperson. Most of 2009’s allocation will go to purchases of secondary private equity assets, and, to a lesser extent, opportunities in distressed debt and mezzanine financing.

A January memo from William Clark, director of the state’s division of investment, said that, based on the goals of the new plan, his division would be lowering or eliminating some previous pledges to gain more flexibility to implement the new strategies. The changes to previous private equity commitments represent a total reduction of $115 million, which includes the $50 million pledged to Charterhouse Capital and two reductions in commitments to TPG, which moved in late December to allow LPs in certain funds to cut their pledges by 10 percent.

In May, New Jersey committed $400 million to mega-fund TPG Partners VI, so TPG’s concession, which the state has agreed to take advantage of, will save it $40 million. The LP had also committed $100 million to TPG Financial Partners but that pledge will be cut by 25 percent to $75 million to reflect a similar lowering of the overall fund’s anticipated size.

The New Jersey State Investment Council has about $64 billion in total assets under management. The state has about half of its private equity portfolio in large and mid-market buyout funds. The LP currently has actual allocation to private equity of 5.35 percent, which is near the 5.50 percent midpoint of its permitted range for the asset class.