The New Jersey Division of Investment (NJDOI) has agreed to invest up to $325 million to Och-Ziff Capital Management Group and TPG Real Estate. The $77.07 billion pension plan previously had invested in separate accounts with both managers and now is investing in the firm’s new commingled funds.
With Och-Ziff, NJDOI agreed to invest an additional $100 million to an existing real estate separate account, OZNJ Real Estate Opportunities, to which it committed up to $200 million from 2010 to 2012. To date, the account has generated a net internal rate of return of 7.48 percent and a net multiple on invested capital of 1.04x, according to documents from the pension plan.
Now, the state also will be further backing the New York-based alternative asset manager with $100 million to a new commingled fund, Och-Ziff Real Estate Credit Fund. The vehicle will focus on real estate credit investments in North America, primarily in the US. Transactions can be structured as first-lien loans, mezzanine loans, subordinate notes, B notes, loan portfolios, preferred equity, ground leases, sale leasebacks and other credit instruments.
Both commitments were part of NJDOI’s larger allocation of up to $900 million to Och-Ziff at its meeting last week. Other earmarks included $300 million to investments in public European structured credit and US and European corporate credit; $200 million to private credit investments; $100 million to private real asset investments and $100 million to middle-market energy investments.
The strategic partnership with Och-Ziff will be structured with a unique netting feature, where the firm’s incentive compensation is calculated based on the aggregate performance of the investments in the platform. Incentive terms therefore will be the same across all platform investments – a management fee of 75 basis points on the net asset value of the partnership and 20 percent performance compensation over a six percent hurdle. Additionally, NJDOI will receive a one-year management fee waiver on all of its new Och-Ziff investments.
Meanwhile, the pension plan also pledged up to $125 million to TPG Real Estate Partners II, although this resulted in a reduction by the same amount to its original $350 million commitment to TPG/NJ RE, a separate account that invests in a range of real estate-related strategies. The state established the account in February 2013.
TPG Real Estate Partners II’s strategy is to invest in niche property sectors where it can build platforms; out-of-favor sectors; distressed assets and corporate platforms; real estate operating companies; and situations where an executive leadership change can drive a turnaround.
The fund, which was launched last year, has a $2 billion target. The fee breaks that the state negotiated with TPG for its commitment were even more aggressive than that of its investments with Och-Ziff, with management fees of 0.65 percent on committed capital and 1.35 percent on invested capital, plus a 16 month committed capital fee waiver.
Also at last week’s board meeting, NJDOI changed its initial recommendation from its March meeting to increase the targeted asset allocation to equity-related real estate from 4.25 percent to six percent. Now, the pension plan has lowered its target asset allocation recommendation to 5.25 percent, as a result of a $400 million increase in distributions and a $300 million slowdown in capital called.