New Jersey revamps rules to boost its credit bucket

The public pension’s global credit allocation cap moved up from 7% to 10% only months after it said it would slow down commitments to private equity.

New Jersey Division of Investment has adapted its portfolio regulations to expand the pension plan's reach into global credit, which will include increased allocations to alternative lenders.

The Trenton, New Jersey-based retirement fund will now be allowed to invest in new types of private credit and set aside more for the asset class, a spokesman said. The pension plan declined to comment further on the decision.

The State Investment Council, which oversees the pension plan, changed the definition of “global diversified credit” on its books to expand the plan's investment strategy to be “more inclusive of the opportunity set in the credit markets”, according to agenda materials for its July meeting.

This comes as the pension plan, which has about 11 percent of its assets in private equity, expressed concerns at a meeting in May regarding record dry powder levels in private equity and disclosed a plan to halve yearly commitments to private equity. It has an 8.25 percent target allocation to private equity.

The previous definition limited the pension's investments to bank loans, mezzanine debt, structured credit, and commercial mortgage backed securities, the documents showed.

After the meeting last week, that definition expanded to include bridge financing, debtor-in-possession financings in bankruptcy cases, opportunistic credit and senior loans. The pension plan will also now be able to allocate capital to equity stakes in publicly traded firms that invest in credit, including business development companies.

The Division of Investment will simultaneously increase its credit allocation limit, from 7 percent to 10 percent of its portfolio. Though the global diversified credit allocation target of 5 percent will remain unchanged, “these amendments would simply give the Division and the Council added flexibility going forward”, the agenda materials read. 

The global diversified credit allocation comprised 4.7 percent, or roughly $3.52 billion, of the total pension fund as of 31 May, according to its latest investment report. The plan's total fund was valued at $75.02 billion as of that date.

The GDC portfolio at the pension plan has showed strong results over the last seven years, the documents also showed. In the year ending 30 April, the Division of Investment showed an 18.5 percent return; a 9 percent return over the three years ending that date; a 12.3 percent return over five years; and a 11.1 percent return over seven years.