New Jersey commits $450 million, reports alternatives fees and performance

New Jersey Division of Investment, which manages investments for the $71.2 billion New Jersey Pension Fund, Trenton, committed up to $450 million to two managers.

The division committed up to $300 million to BCA CAP I, managed by Blueprint Capital Advisors.

Blueprint Capital will “make investments in portfolios managed by hedge fund managers with the goal of providing differentiated exposures with a discount fee structure,” said a document presented Wednesday to the State Investment Council. Blueprint Capital “will consider strategies across the spectrum of liquid hedge funds and opportunistic investments.”

The pension fund also committed up to $150 million to a separate account with Crayhill Capital Management — up to $100 million to Crayhill Principal Strategies Fund “or in a parallel vehicle,” and up to $50 million “would be reserved for other investment identified by Crayhill,” a division document stated.

“Crayhill will target private structured credit investments secured by real and financial assets,” said the document regarding the division’s first-time investment with Crayhill.

The division also reported the results of a study examining performance and fees for the past six fiscal years through June 30, 2016.

The division found the annualized net return of alternative investments (9.19%) during this period exceeded annualized returns of the pension fund as a whole (8.45%), pension fund assets excluding alternatives (7.95%) and a 70% stock/30% bond portfolio (7.76%).

The analysis said alternatives had lower volatility and a higher Sharpe ratio during this six-year period than each of the other categories.

Alternative investments include hedge funds, private equity, real estate funds, real asset funds, opportunistic funds and global diversified credit funds. They accounted for 34% of plan assets for the fiscal year ended June 30, 2016, vs. 17% for the fiscal year ended June 30, 2011.

The division said total fees and expenses were $659.1 million for the fiscal year ended June 30. Of that total, $242 million was for alternatives managers’ performance fees. In addition, about $377.4 million was paid to them for management fees and expenses.

Internal management, division expenses and other expenses accounted for $39.7 million.

For the fiscal year ended June 30, 2015, total fees and expenses were $744 million — $328.4 in performance fees, $373 million in alternatives management fees and expenses, and $42.6 million in division and internal management expenses.

The division reported that the New Jersey Pension Fund’s return on investment for the first six months of the current fiscal year through Dec. 31 was 4.84% vs. a custom benchmark of 5.01%. For the calendar year, the return was 7.09% vs. a benchmark of 8.17%.

For the three years ended Dec. 31, the annualized return was 4.91% vs. a benchmark of 4.81%, and for five years, 8.41% vs. a benchmark of 7.86%.

For calendar year 2016 performance, the best asset classes were public high-yield bonds (15.43%), global diversified credit (12.45%) and emerging markets equities (11.63%). The worst-performing asset classes were real estate debt (-2.67%), U.S. Treasuries (-1.26%), absolute-return hedge funds (0.06%) and equity-oriented hedge funds (0.19%)

The division also reported that it is working with Aon Hewitt Investment Consulting to complete an initial comprehensive asset-liability study by January 2018 for review by the investment council. The division plans to conduct such studies every three years.