Memorandum to: State Investment Council
From: Timothy Walsh, Director
Subject: Proposed Investments in TPG Opportunities Partners II, L.P. & Related Separate Account Vehicles
The New Jersey Division of Investment (“Division”) is proposing an investment of $100 million in TPG Opportunities Partners II, L.P. (“TOP”) and $200 million into separate accounts (New Jersey/TPG NPLs – Commercial & New Jersey/TPG NPLs – Residential). This memorandum is presented to the State Investment Council (the “Council”) pursuant to N.J.A.C. 17:16-69.9.
TPG formed TOP in 2009 to capitalize on liquid and illiquid credit dislocations and other special situations on a dynamic basis across various economic cycles. TOP began investing in May 2009 through separately audited entities primarily within TPG Partners VI, L.P. and TPG Financial Partners, L.P. The Division’s relationship with TPG Opportunities Partners began in May 2011 with a $200 million investment to TOP’s direct lending vehicle TPG Specialty Lending.
TOP is the primary TPG investment platform for credit investing, and is forming TPG Opportunities Partners II to serve as its principal investment vehicle to pursue special situations and distressed investments across the credit cycle in corporate and asset special situations.
The proposed separate accounts will take advantage of the opportunity within the Commercial and Residential non-performing loan space. These accounts will participate alongside TOP II. It should also be noted that these vehicles will have a three year investment period with the option for NJ to extend as it sees fit. The Division has also negotiated favorable terms with a management fee of 0.5% on invested capital and 15% carry.
The Division of Investment (“Division”) Staff and its private equity consultant, Strategic Investment Solutions, undertook extensive due diligence on these proposed additional investments. 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 TPG Opportunities Partners II, L.P. and one of the related separate vehicle investments (New Jersey/TPG NPLs – Residential) are authorized pursuant to Articles 69 and 90 of the Council’s regulations and will be considered debt-related investments, as defined under N.J.A.C. 17:16-90.1. The second related separate vehicle investment (New Jersey/TPG NPLs – Commercial) is authorized pursuant to Articles 23 and 63 of the Council regulations and will be considered a bank loan fund as defined under N.J.A.C. 17:16-23.1.
Formal written due diligence reports for the proposed investments 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 reports, 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 investments at the Council’s October 13, 2011 meeting.
Source: State of New Jersey State Investment Council