New Jersey forms $1.8bn partnership with Blackstone

The $66bn pension projects saving $120m in fees over the life of the partnership, in which the system will allocate capital to traditional Blackstone funds and customised accounts with ‘1% and 15%’ term structures.

New Jersey has formed a $1.8 billion “strategic relationship” with The Blackstone Group with a broad mandate to commit to traditional and customised investment vehicles across strategies like buyout, credit and real assets.

New Jersey’s state pension, which has about $66 billion in assets, is already a significant investor with Blackstone and “is proposing to deepen that relationship through a series of customised accounts with highly attractive terms, including significantly lower fees than dedicated fund investments, and with the ability to control the pace of investing”, the pension’s investment staff said in internal documents.

As part of the relationship, the pension will invest up to $1.5 billion in four customised investment vehicles that focus on opportunities across geographies and asset classes, including credit, real estate and energy.

The pension also will commit $300 million to three Blackstone funds – $50 million to the firm’s sixth buyout fund, which has collected more than $16 billion but has not yet officially closed; $150 million to Blackstone Energy Partners, which is targeting $3 billion; and $100 million to GSO Special Situations Fund.

[New Jersey] is proposing to deepen that relationship through a series of customised accounts with highly attractive terms, including significantly lower fees than the dedicated fund investments, and with the ability to control the pace of investing.

New Jersey pension investment staff

The pension system considers Blackstone “the best single manager across the alternative investment areas of private equity, real estate, credit and hedge funds”, investment staff said in board documents. Blackstone already manages about $1.1 billion for New Jersey, making it by far the system’s largest relationship.

The separate accounts were especially attractive to the pension system because of projected savings in fees over the life of the relationship of about $120 million, investment staff said in documents. The three separate accounts will have an average management fee during the investment period of 1 percent on invested capital, and an average carried interest rate of 15 percent. Also, the firm will use 100 percent of any deal, monitoring or director fees to offset the management fees.

Because of the tailored nature of the separate accounts, New Jersey will have influence to “manage risk exposures, to control the pace of investments, to respond to changing market opportunities and to ensure that the [pension system] continues to receive the highest level of attention on an ongoing basis”, according to investment staff.

New Jersey and Blackstone were not available for comment as of press time.

The partnership is the second formed by a major US pension and a large private equity manager. In November, the Teachers Retirement System of Texas announced the creation of strategic relationships with Kohlberg Kravis Roberts and Apollo Global Management in which the pension system would dedicate up to $3 billion over time to each manager for investments across asset classes.

Strategic relationships like that between Blackstone and New Jersey are likely to become more common as LPs look for ways to cut fees and exert more control over the partnerships, according to LP and GP sources.