New Jersey to slow down PE commitments

The $74bn pension fund, which has 11% in private equity, is concerned about record dry powder levels and plans to halve yearly commitments.

The New Jersey State Investment Council plans to slow down its commitment pacing in private equity and real estate for the next eight years.

At its meeting in Trenton, New Jersey on Wednesday, SIC voted to approve a new asset allocation plan for its entire pension fund that includes adjustments to reduce commitment levels in its private equity and real estate portfolios.

As of 30 April, SIC had 10.65 percent of its $73.6 billion total assets in private equity – which includes buyouts, venture capital and opportunistic private equity – slightly overweight from its 8.25 percent target allocation. 

“Private equity and real estate portfolios have been some of the best-performing asset classes for the [pension] fund,” New Jersey Division of Investment deputy director Corey Amon said at the meeting. “But record levels of fundraising and dry powder offsets the long-term favourable profile of them.”

He said combined with SIC's over-allocation, these market conditions call for a conservative approach in commitment pacing in private equity, a plan that calls for about $1 billion of commitments every year from 2017 to 2024.

In 2016, SIC committed nearly $2 billion to private equity, Wednesday's meeting materials showed.

The materials also indicated that, given net distributions from private equity funds remain positive, a reduction in commitment levels going forward will help SIC move towards its target private equity allocation.

Although SIC is slightly underweight at 5.3 percent in real estate, below its target allocation of 6.25 percent, materials showed an anticipation of significant net cashflow from distributions going forward in this asset class that would require a reduction in commitment pacing.

From 2017 to 2024, SIC plans to commit around $100 million to real estate funds per year, compared with about $400 million it actually committed in 2016, according to meeting materials.