Proposed Additional Investment in Omega Oversees Partners, Class B Fund

Memorandum to: State Investment Council
From: Timothy Walsh, Director
Subject: Proposed Additional Investment in Omega Oversees Partners, Class B Fund

The New Jersey Division of Investment (“Division”) is proposing an additional investment (“investment”) of up to $150 million in Omega Oversees Partners, Class B Fund (“Omega”). This memorandum is presented to the State Investment Council (the “Council”) pursuant to N.J.A.C. 17:16-69.9.

The Division is recommending this investment based on the following factors:

  • Opportunity to expand investment with successful, experienced hedge fund manager: The Division originally invested $75 million in Omega Oversees Partners in January 2007. That investment has generated an annualized 7.48% return compared to annualized 2.10% return for S&P 500 Index and is now valued at approximately $112 million.
  • Attractive return profile: Omega Overseas Partners has generated a 13.79% annualized return with 15.36% Standard Deviation from inception in 1992 to October 2012. The fund ranks in the top quartile on an absolute as well as on a risk adjusted basis among HFRI universe and HFRI Equity Hedged (Total) Index universe over most time periods.
  • Experienced Investment Manager: Leon Cooperman is a highly respected stock picker who spent 25 years at Goldman Sachs, including 22 years in the Investment Research Department, before founding Omega, where he has built a 20 year track record.
  • Favorable terms: The Division’s existing and future investment are at better than average hedge fund terms with a management fee of 1.0% and 15% performance fee.

Omega was founded by Leon Cooperman in January 1992. Mr. Cooperman was previously a General Partner of Goldman Sachs and was the Chairman and CEO of GS Asset Management. The firm manages $7.0 billion in long biased Long/Short Equities through funds and separate accounts. Omega has 36 employees, 22 of which are investment professionals.

A report of the Investment Policy Committee (“IPC”) summarizing the details of the proposed investment is attached.

Division Staff and its hedge fund consultant, Cliffwater LLC, undertook extensive due diligence on the proposed investment in accordance with the Division’s Alternative Investment Due Diligence Procedures. 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 the investment. In addition, the proposed investment must comply with the Council’s regulation governing political contributions (N.J.A.C. 17:16-4).

Please note that the investment is authorized pursuant to Articles 69 and 100 of the Council’s regulations. The Fund will be considered an equity oriented hedge fund investment, as defined under N.J.A.C. 17:16-100.1.

A formal written due diligence report for the proposed investment was sent to each member of the IPC and a meeting of the Committee was held on January 9, 2013. In addition to the formal written due diligence report, all other information obtained by the Division on the investment was made available to the IPC.

We look forward to discussing the proposed investment at the Council’s January 17, 2013 meeting.

Source: State of New Jersey State Investment Council