The New Jersey State Investment Council plans to slow down its commitment pacing in real estate and private equity for the next eight years, PERE’s sister publication, Private Equity International, reported Wednesday.
At its meeting in Trenton, SIC voted on Wednesday to approve a new asset allocation plan for its entire pension fund that includes adjustments to reduce commitment levels in its real estate and private equity portfolios.
Although SIC is slightly underweight at 5.3 percent in real estate, below its target allocation of 6.25 percent, materials showed an anticipation of significant net cashflow from distributions going forward in this asset class that would require a reduction in commitment pacing.
From 2017 to 2024, SIC plans to commit around $100 million to real estate funds per year, compared with about $400 million it actually committed in 2016, according to meeting materials. The pension system had $7.1 billion invested in real estate as of March 31, according to its most recent investment report.
Real estate returned 6.5 percent in the year ending March 31, while private equity returned 8.4 percent.
“Private equity and real estate portfolios have been some of the best-performing asset classes for the [pension] fund,” New Jersey Division of Investment deputy director Corey Amon said at the meeting. “But record levels of fundraising and dry powder offsets the long-term favorable profile of them.”
Amon said combined with SIC's over-allocation, these market conditions call for a conservative approach in commitment pacing in private equity, a plan that calls for about $1 billion of commitments every year from 2017 to 2024. In 2016, SIC committed nearly $2 billion to private equity, Wednesday's meeting materials showed.
As of April 30, SIC had 10.65 percent of its $73.6 billion total assets in private equity – which includes buyouts, venture capital and opportunistic private equity – slightly overweight from its 8.25 percent target allocation.
At its Wednesday meeting, the SIC also earmarked $50 million to Hammes Partners’ latest healthcare real estate-focused vehicle, Hammes Partners III. The fund launched last month, according to a filing with the Securities and Exchange Commission. The pension system committed $100 million to the firm’s predecessor vehicle, which closed in July 2015 on its $430 million hard-cap, PERE previously reported.
The changes come while New Jersey is in the middle of a search for a real estate consultant, PERE reported in April. The pension system is accepting proposals through June 15. Its previous real estate consultant was RVK, the Portland, Oregon-based consultancy. RVK’s real estate team spun out in February to form a Chicago-based firm called Alignium.
With reporting by Meghan Morris