New Jersey approves third Neuberger custom fund

Neuberger Berman offered management fees for this co-investment and fund investment-focused vehicle that were more favourable to New Jersey than the previous separate account.

The New Jersey Division of Investment has approved an up to $200 million commitment to its third separately managed account with Neuberger Berman, which offers slightly better management fee terms than its predecessor, according to the pension’s 29 March meeting materials.

At the meeting, the New Jersey State Investment Council, which allocates 10.6 percent of its $73 billion in assets to private equity, voted to launch Neuberger Berman New Jersey Custom Fund III, a private equity fund that will be 99 percent composed of New Jersey’s commitment and 1 percent from the general partner commitment. 

NB/NJ Custom Fund III will follow the strategy of its predecessors by targeting equity co-investments in buyout, growth equity and special situations, ranging from $5 million to $15 million per transaction, the most recent meeting materials said. The fund will also make some fund investments.

The third separate account comes five years after New Jersey committed $200 million to NB/NJ Custom Fund II. That fund had a management fee of about 0.5 percent on average throughout the fund’s life, according to the LP’s meeting materials from January 2012.

With the third fund, Neuberger Berman is charging 0.5 percent on actively invested capital of unrealised co-investments and 0.1 percent on committed capital for fund investments during the investment period for NB/NJ Custom Fund III. During the harvest period, New Jersey will pay 0.3 percent on actively invested capital of unrealised co-investments, and no fee on committed capital for fund investments, materials for the 29 March meeting showed.

Neuberger Berman will also take 10 percent of investment profits on co-investments as carried interest, with an 8 percent preferred return, and no carried interest on fund investments. If the hurdle rate is set at 15 percent, however, the GP’s profit sharing will rise to 15 percent carried interest, the materials said.

New Jersey began its relationship with Neuberger Berman in 2007, when it committed $100 million to a separate account named NB/NJ Custom Investment Fund, which focused on investments in New Jersey, according to the 2012 meeting materials. This SMA, the first for New Jersey with Neuberger Berman, was generating a 10.9 percent net internal rate of return as of 30 September, the latest meeting materials showed.