New Jersey Pension Seeks More Private Equity, Credit Investments

(Bloomberg) -- New Jersey's $83 billion pension fund is eyeing further investments in private equity and credit to boost performance.

With stocks at record levels and low interest rates constraining bond returns, higher allocations to assets such as private equity are needed, Corey Amon, the director of the division that manages the fund's investments, said in an interview.

The New Jersey pension, which oversees assets for 800,000 active and retired employees, joins peers in bolstering such stakes as they hunt for yield to meet obligations to their members.

That effort has already begun. In the midst of pandemic-induced dislocations in March, the New Jersey State Investment Council allocated close to $1 billion to private credit markets. In July, the fund raised its private equity target allocation to 13% from 12% and private credit to 8% from 6%, according to a meeting document. It also increased its target for real estate and real assets.

Some of these moves came as equities markets soared and private credit underperformed. The fund returned 1.2% for the fiscal year ended June 30, 2020, in part because of certain private market investments. The S&P 500 gained 5.4% in that period.

Even so, Amon said these investments will help the fund in the long term -- and he's already seeing results. The fund was up 14.8% for the first half of fiscal 2021, which began July 1.

“It's true that the private markets underperformed the public markets, in particular at the same time that we were expanding our allocations to private markets, notably in private credit,” Amon said. “In the rear-view mirror it's adversely impacted our returns during fiscal 2020, but looking forward it should add value for the pension fund.”

Amon said that along with the increased allocations the organization is making sure to scrutinize the often steep fees that come with private market vehicles. He's mindful of the levels of dry powder and fundraising in the buyout industry as many managers rake in capital faster than they can put it to work.

The pension is also seeking to allocate more capital to renewables and infrastructure, and is exploring ways to become more active in secondaries, which allow investors to cash out of other private-equity investments. Managers are also turning to the market for secondhand stakes to hold onto assets for longer.

Another focus is on environmental, social and governance issues including diversity and climate change initiatives. To aid in that effort, Eddie Ramos recently joined the division of investment as its first diversity portfolio manager and Suzanne Hannigan was named sustainable investing portfolio manager, also a new position. She had been with the division since October 2015.

“The best way to be able to evaluate the risks of climate change is to have better financial disclosure of those risks,” said Amon. “There's a body of evidence that supports the notion that more diverse public company boards have better financial results.”

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