BlackRock Fund-of-Funds to Get Up to $1 Billion From New Jersey

  • Pension system targeting lower fees from investment managers
  • State seeks to pay about 1% of assets and 10% of trading gains

The New Jersey State Investment Council voted to invest up to $1 billion in a separate account with BlackRock Inc.’s fund-of-hedge funds unit as part of an effort to tap lower fees from asset managers.

The account with BlackRock Alternative Advisors will target an average fee of 1 percent of assets and 10 percent of profits among the underlying hedge funds, according to a July 29 investment proposal that was approved Wednesday. New Jersey is also hoping to require a minimum return level, known as a hurdle rate, from the underlying managers before performance charges are levied. The first tranche won’t exceed $500 million, according to information presented to the State Investment Council in Trenton.

“This is exactly the type of exposure I think our hedge fund portfolio should have,” said New Jersey council member Guy Haselmann. “These are some of the best people doing it in the business.”

The decision comes as New Jersey decides to halve its overall exposure to hedge funds amid pressure from labor unions to cut fees to the investment managers. The plan for fiscal 2017 approved Wednesday calls for reducing its target allocation to hedge funds to 6 percent from 12.5 and pushing for lower fees from fund managers, which is expected to save $127 million per year once the restructuring is complete, according to council documents.

In May, New Jersey decided to boost its investment in a separate account with BlackRock Private Equity Partners to $1.3 billion. The account makes co-investments and invests in venture capital and private equity funds as well as secondary stakes in private funds. It will pay a 0.45 percent management fee and 10 percent carried interest on co-investments, above an 8 percent performance hurdle, according to a report by New Jersey Division of Investment Director Christopher McDonough.

“The Division has an established relationship with BlackRock in private equity,” McDonough wrote in his proposal for the fund-of-funds investment. “This hedge fund mandate will expand the relationship; it will allow for increased fee savings and greater ability to leverage BlackRock’s resources and systems. BlackRock will serve as an extension of the Division’s staff across the entire hedge fund allocation.”

New Jersey will pay a 0.3 percent management fee on the separate account with BAA, which oversaw about $21 billion as of June 1, according to documents provided by McDonough. The fund will allocate money to as many as 10 managers who employ strategies including wagers on macroeconomic events, relative value, long-short equity, and credit.

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