NJ pension commits $250m to real estate funds as assets decline

The US public pension looks to alternatives to drive returns, plowing $825m into private equity, real estate and hedge funds.

The New Jersey Division of Investment has committed $250 million (€157 million) to two real estate vehicles despite its assets under management falling by six percent in the past year alone.

The pension fund, one of the largest in the US, saw the value of its total assets under management fall to $77.7 billion as of  June 30, down from $82.5 billion during the same period last year.

However despite the decline in asset values, the DOI committed $150 million to Morgan Stanley’s latest global real estate vehicle, Morgan Stanley Real Estate Fund VII Global, and committed $100 million in a follow-on investment to TA Associate Realty’s ninth fund, TA Associates IX.

According to documents on the New Jersey pension fund’s website, Morgan Stanley is targeting up to $12 billion with its global fund, which will focus on “large, wholly or majority owned positions.” The vehicle will also look at distressed opportunities and investments in emerging markets, with expected IRRs of more than 20 percent. Geographically, investments will be split equally between the US, Asia (with a focus on Japan), Western Europe (with a focus on Germany) and the emerging markets (with a focus on China).

TA Associates IX is targeting $1.75 billion with gross returns of up to 17 percent, according to the New Jersey pension. The fund will focus on office, industrial, multifamily and retail assets in the US, particularly along the east and west coasts, and typically $20 million to $50 million in gross value. The fund is expected to invest in more than 100 properties.

Of New Jersey’s total assets, $9.1 billion, or 11.7 percent, is made up of alternative investments – in excess of the 10.3 percent target allocation. However the fund’s portfolio was down 3.1 percent for the year ending 30 June. Alternative investments were excluded due to lags in reporting, the pension said. The major driver of negative returns has been US equities, returns for which declined more than 10 percent against the S&P 1500 Index benchmark of almost 13 percent.

During the pension’s June and July meetings though, the pension board agree to commit $575 million to four private equity funds, including JPMorgan Venture Capital Institutional Investors IV; Lehman Brothers Secondary Opportunities Fund II; Lindsay Goldberg’s third private equity fund and Fairview Capstone II-NJDOI Emerging Manager Separate Account. The commitments were in addition to the $250 million invested with Morgan Stanley and TA Associates.