New Jersey Pays To Play Alternatives In Credit Markets

Sep 28 2007 | 11:04am ET

New Jersey’s State Investment Council this month approved a slew of investments for the state’s $81 billion pension fund to invest in the credit markets via private equity and hedge funds.

On the p.e. front, a $400 million commitment was made to Warburg Pincus Private Equity X, a $250 million commitment to Oak Hill Capital Partners III, an additional $100 million commitment to Avenue Special Situation Fund V, a $200 million commitment to the Oaktree Loan Fund and a $100 million commitment to the TPG-TAC 2007 Fund.

The Garden State’s looking to take advantage of “a perceived opportunity in bank loan investments” by investing in the Oaktree Loan Fund and TPG-TAC 2007 Fund, according to minutes from the system’s Sept. 14 meeting.

“Given the current dislocations in the credit markets, we believe that the banks and investment banks will only be able to sell off these [bridge] loans at discounts to par value,” according to the minutes from meeting.

“To put this opportunity into perspective, we estimate that these banks are currently holding over $300 billion in such loans on their books from LBO transactions that are in various stages of completion.”

The system is also looking to play the credit market via hedge fund vehicles. The system is also looking to play the credit market via hedge fund vehicles. It is making a $100 million commitment to Canyon Special Opportunities Fund, a $100 million commitment to GoldenTree Credit Opportunities Fund, a $400 million commitment to BlackRock Credit Investors Fund, and a $150 million commitment to the AG Diversified Credit Strategies Fund.

“Three of these fund managers are starting specialized credit funds to take advantage of the current dislocations in the credit markets, including but not limited to the bank loan market,” the system said. “GoldenTree Asset Management, L.P. is the exception; they have an existing credit opportunities fund and plan to use that entity to invest in these opportunities.”

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