New Jersey invests $550m in TPG, Blackstone accounts

The state pension fund has set aside $300m for a separate account with the TPG Special Situations’ TAO platform and $250m for a ‘tactical opportunities’ Blackstone fund targeting real estate credit instruments.  

The New Jersey State Investment Council (SIC) approved commitments to two debt funds managed by TPG and the Blackstone Group at a meeting yesterday (18 November).

The SIC, which oversees the $75 billion New Jersey Division of Investment, voted to invest up to $300 million in the Knight TAO platform, as well as up to $250 million in the Blackstone TacOpps Residential Opportunities vehicle. Both are being slotted into the pension’s global diversified credit allocation. 

The TAO vehicle is TPG’s TSSP (TPG Special Situations Partners) Adjacent Opportunities platform, which invests across the firm’s direct-lending funds, special situations and distressed debt funds, as well as other opportunities, New Jersey documents said.

A memo from chief investment officer Chis McDonough to the SIC said the system negotiated a 1 percent management fee on invested capital and a 15 percent performance fee on a 6 percent hurdle rate. TAO was recommended by the division’s investment staff and consultant, TorreyCove Capital Partners.

The New Jersey documents also noted the TAO I fund posted 19 percent net IRR, while the TAO II fund returned 16.4 percent. The third TAO vehicle, which is being set up in the form of separate accounts with many pension funds, is raising $3.5 billion in an open-ended structure. The Texas Municipal Retirement System and the Pennsylvania Public School Employees Retirement System have also dedicated money to the strategy.

The Blackstone Group’s TacOpps (Tactical Opportunities) Residential Opportunities vehicle was set up to acquire and manage proprietary, non-agency residential mortgage loans and mortgage services rights.

“Since the financial crisis, large banks have scaled back from the residential mortgage origination business and sharply curtailed credit availability, creating significant dislocation in the market. Consequently, the breadth of borrowers underserved by existing mortgage credit presents an attractive opportunity to own non-agency mortgage assets,” said New Jersey’s documents on the investment.

The pension fund is also a seeder in the vehicle, which is a first such fund for Blackstone, and has negotiated terms of 1 percent on invested capital, no incentive fee and a 25 percent profit participation interest.

“To the extent other investors participate in the vehicle, the division will receive a 25 percent profits participation interest on the management fees and incentive payments earned by Blackstone. In the division’s base case scenario, the profit interest translates into $8.5 million of cash flow per year,” the documents said.

The retirement fund also voted to invest up to $100 million in the Advent International Global Private Equity VIII fund and up to $150 million in the Brookfield Capital Partners IV fund, a real asset vehicle.