New Jersey Division of Investment, which manages investments for the New Jersey Pension Fund, Trenton, paid $606.4 million in performance-related incentive fees to external alternatives investment managers for the fiscal year ended June 30, 2021.
These incentive payments, called performance allocations, reflect strong results by the six alternative investment categories in the New Jersey Pension Fund lineup, said the annual report of the New Jersey State Investment Council, which governs the division of investment's pension-related policies. The report is posted on the website of the New Jersey Department of the Treasury.
These incentive fees are paid to management firms that exceed certain performance-related goals. The six alternatives investment categories produced an aggregate net return of 29.22% for the fiscal year ended June 30. The net return for the total pension fund, including alternatives, was 28.63% for the fiscal year ended June 30, the report said.
The alternative investment program "has been a significant driver of favorable returns for the total pension fund over longer-term periods," the annual report said. "For the 10 years ended June 30, 2021, the program has returned (an annualized) 8.93%, in line with the total pension fund." The 10-year annualized return for the total pension plan also was 8.93%.
Alternatives accounted for $26.5 billion, or 27% of the pension fund's total assets of $95.7 billion, for the fiscal year ended June 30, 2021, at that time. As of Dec. 31, pension fund assets were $98 billion.
The total amount paid to alternatives managers was more than double the performance allocations, of $239.8 million paid for the fiscal year ended June 30, 2020. Bonuses were paid to managers of hedge funds, private equity, real estate funds, real asset funds, opportunistic funds and global diversified credit funds.
The higher incentive fees were "primarily due to increases in performance allocations across all asset classes, particularly private equity and global diversified credit" for the fiscal year ended June 30, the report said.
The performance allocation for private equity rose to $308.3 million from $113.5 million in the fiscal year ended June 30, 2020, and the incentive fees global diversified credit was $169 million, up from $41.8 million.
The private equity net return for the latest fiscal year was 47.89% and the global diversified credit net return was 24.45%, the report said.
Of the $6.55 billion in estimated net profits for the six alternatives categories, private equity contributed an estimated $3.8 billion and global diversified credit contributed an estimated $1.17 billion for the fiscal year, the report said.
The annual report also said the division of investment paid $355.7 million in fees and expenses for the six alternative investment categories plus division operations, internal management and payments to advisers in a few other asset categories for the fiscal year ended June 30. These expenses are separate from the performance allocations.
These fees and expenses were $369.7 million for the fiscal year ended June 30, 2020, the report said.