Garden State Cuts Alternative Commitments, Eyes Secondary Plays

Jan 23 2009 | 1:07am ET

The $63.9 billion New Jersey Division of Investment is cutting back on its private equity and hedge fund commitments in favor of safer fixed-income bets.

According to an internal memo, the pension is planning a significantly higher allocation to various fixed-income investments at the expense of public equities and new investment in alternatives.

“We believe that the current market environment provides us with an unprecedented opportunity to obtain equity-like returns from fixed-income investments while at the same time reducing both portfolio risk and plan surplus risk,” director William Clark wrote. “At the margin, the planned growth in our fixed-income portfolio reduces the need for the diversification impact provided by the alternative investment portfolio.”

On the private equity front, the plan may reduce its commitments of $500 million to $750 million to new funds. The majority of the plan’s p.e. investing this year will be on the secondary market, “where we believe that ‘forced’ selling by endowments and other pension funds will result in our ability to purchase desirable funds at significant discounts to net asset value.”

Clark wrote that the plan also believes that there may be opportunities to buy hedge fund stakes on the secondary market.

“That may provide us with attractive opportunities to acquire funds with top managers at a significant discount to net asset value,” he wrote.


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