Proposed Investment in AnaCap Credit Opportunities II

Memorandum to: State Investment Council
From: Timothy Walsh, Acting Director
Subject: Proposed Investment in AnaCap Credit Opportunities II, L.P Fund

The New Jersey Division of Investment is proposing an investment up to £70 million in AnaCap Credit Opportunities II, L.P. This memorandum is presented to the State Investment Council (the “Council”) pursuant to N.J.A.C. 17:16-69.9.

AnaCap Financial Partners, with £1 billion of assets under management, is a specialist private equity investment advisor established in 2005 to focus on investments in the European financial services sector. AnaCap Credit Opportunities Fund II, L.P. (“ACOF II” or the ‘Fund”) is the second fund formed under the AnaCap financial platform to invest in portfolios of distressed debt assets in Europe. The Fund will leverage the networks, analytical capabilities and operational skills of the broader AnaCap platform to generate value from credit investment opportunities that arise across Europe.

ACOF II is targeting £250 million, with a hard cap of £350 million, to continue its strategy of investing in portfolios of performing, semi-performing and non-performing loans to consumers or small and medium sized enterprises. These portfolios may include unsecured consumer loans, credit card debts, residential and commercial mortgage loans, second lien loans, or other obligations. Fund II targets investments ranging in size between £5 million and £50 million in 12-20 transactions, with expected average holding periods of four to six years. The geographical focus will be Pan-European with a concentration in UK (50%), Ireland (15%), Portugal (15%) and Spain (15%), and the asset sub-sectors are 10% Securities, 35% Residential Performing & Non-Performing, 35% Consumer Performing & Non-Performing, and 20% SMEs.

The Division of Investment (“Division”) Staff and its private equity consultant, Strategic Investment Solutions, undertook extensive due diligence on this proposed investment. We completed the same due diligence process as with all the other alternative investment opportunities presented to the Council.

As part of its due diligence process, staff determined that the fund has not engaged a third-party solicitor (a “placement agent”) in connection with New Jersey’s potential investment.

We will work with representatives of the Division of Law and outside counsel to review and negotiate specific terms of the legal documents to govern each investment. In addition, each proposed investment must comply with the Council’s regulation governing political contributions (N.J.A.C. 17:16-4).

Please note that this investment is authorized pursuant to Articles 69 and 90 of the Council’s regulations. The AnaCap Credit Opportunities II, L.P will be considered a debt–related investment, as defined under N.J.A.C. 17:16-90.1.

Formal written due diligence reports for the proposed investment were sent to each member of the Investment Policy Committee and a meeting of the Committee was held on September 8, 2011. In addition to the formal written due diligence report, all other information obtained by the Division on the investment was made available to the Investment Policy Committee.

We look forward to discussing the proposed investment at the Council’s October 13, 2011 meeting.

Source: State of New Jersey State Investment Council