New Jersey Beefs Up Alts. Portfolio

Feb 25 2008 | 11:03am ET

The Garden State is looking to boost its alternative investment portfolios with a new round of commitments to private equity, hedge fund and commodity managers.

According to an internal memo, director William Clark is recommending a $100 million commitment to the Tenaska Power Fund II, a buyout fund that makes primarily controlling acquisitions in a diverse group of power and energy-related companies and assets in the United States. Clark is also recommending a $100 million direct investment in New York-based Pershing Square Capital Management’s Pershing Square II.

“As opposed to most activist funds, which only focus on the long-side, Pershing Square focuses on both long and short opportunities,” according to the memo. “From inception in January 2004 to December 2007, [Pershing Square] has generated an annualized return of 31.46% with a 16.44% standard deviation.”

Also, Clark is revisiting the $81.3 billion fund’s investments in commodity-linked notes, which proved to be very profitable for the fund in 2007, to generate additional returns for its portfolio. Last year, the fund invested a total of $450 million in commodity-linked notes issued by Lehman Brothers, Merrill Lynch and Goldman Sachs. To date, the one-year notes issued by Lehman and Merrill have both matured returning 25.22% and 36.97% respectively through Jan. 31, and the notes issued by Goldman, which will mature on Feb, 28, have returned 29.83%.

Although the fund has exposure to actively managed commodity strategies run by Schroder Investment Management and Gresham Investment Management, Clark is once again proposing further commitments to commodity notes stating, “Even though we still have additional “capacity” with Schroder and Gresham, we are again proposing to have the flexibility to invest up to $500 million in commodity-linked notes with a term up to one year.”

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