New Jersey adds $500m to credit mandates

The New Jersey state pension fund is allocating more money to its US and European credit investments with Och-Ziff Capital Management via a broad separate account.  

The New Jersey State Division of Investment has added $500 million more to its credit investments with Och-Ziff Capital Management as part of plowing an additional $900 million into separate accounts with the New York-headquartered firm, which runs a variety of strategies for the Garden State retirement system. The New Jersey State Investment Council voted at a meeting on 27 May to allocate $300 million more to the OZSC II fund, which invests in European and US structured credit. It also added $200 million to the NJPO partnership, which invests in private credit. New Jersey originally invested $374 million in the OZSC II and $189 million in the NJPO in Marchthis year.

The investments fall into New Jersey’s global diversified credit allocation, which the system voted to establish at 5 percent last year, as PDI reported. New Jersey’s board meeting documents said that attractive return opportunities have drawn it to the asset class. “Investments in structured and corporate public credit securities have materially outperformed their benchmarks with the inception to date returns ranking in the top quartile of their strategy universe,” the meeting materials said. “The private transactions, while early in their life cycle, are performing on track with expectations.”

Other additions to the Och-Ziff relationship included a $100 million to the NJRE real estate investments separate account, $100 million more to the NJRA, private real asset investments and new $100 million each commitments to commingled funds: the Och-Ziff Real Estate Credit fund and the OZ Energy Partners fund.

In its board meeting materials, the pension also outlined the attractiveness of such a partnership with an alternative investment firm, such as the ability to make tactical changes in the portfolio and better fees and terms. “The multi-disciplinary approach of the platform enables it to opportunistically shift focus to the most compelling risk-adjusted return opportunities to capitalize on market dislocations. Exposures in the public strategy have shifted away from value-driven opportunities early in the life of the portfolio to event-driven situations today. The account has also taken advantage of private transactions that provide idiosyncratic sources of return or an excess illiquidity premium. Opportunities will continue to arise from traditional corporate distressed cycles in the US and Europe, distressed high-yield energy companies, structural regulatory changes within the banking sector and the ability to provide long-dated capital,” the documents said.

Discounted fees and the structure’s unique netting feature, in which the performance of all strategies within the platform are netted against each other before calculating Och-Ziff’s incentive compensation, create a strong alignment of interest,” the materials continued. The division pays a management fee of 75 basis points on net asset value of the entire Och-Ziff book and a 20 percent performance fee over a 6 percent hurdle rate. Given the size of the platform, the division has also negotiated a management fee waiver for the first year of the platform. “The division also retains veto rights over all private transactions in the platform and has access to detailed investment memoranda and the deal teams. Frequent and candid interactions with Och-Ziff have been valuable in the management of the division’s broader portfolio,” the documents said.