Memorandum to: State Investment Council
From: Christopher McDonough, Director
Subject: Proposed Investment in Aether Real Assets SONJ Fund, L.P.
The New Jersey Division of Investment (“Division”) is proposing an investment of up to $135 million in Aether Real Assets SONJ Fund, L.P. (“Aether”). This memorandum is presented to the State Investment Council (the “Council”) pursuant to N.J.A.C. 17:16-69.9.
Aether will execute a globally diversified opportunistic strategy across the real asset subsectors of agriculture, timber, metals/mining, and oil and gas. Over a full market cycle, the fund targets to outperform the Bloomberg Commodity Index by 12% to 15% net, a portion of which will come from annual yield. Aether will prosecute its strategy by investing in primary funds, secondary market opportunities, and co-investments.
The Division is recommending this investment based on the following factors:
- Diversifying exposure: The Aether mandate will balance the risk/return characteristics of the Division’s real asset portfolio. Specifically, Aether will diversify away from the Division’s existing energy commodity price risk and balance the current PE-like risk/return profile with a lower risk/return profile that generates ongoing annual income and exhibits inflation protection characteristics.
- Opportunistic investment approach: Aether’s approach allows them to invest in those commodity subsectors and geographies with the best opportunity set at any given point in time. Aether focuses on the Agriculture/Timber, Metals/Mining, and Oil & Gas subsectors globally, as well as an Opportunistic allocation.
- Differentiated deal flow: Aether invests in smaller fund sizes that the Division would be challenged to access directly given its large size. As a result, the Aether investment will provide differentiated deal flow at the lower end of the market that complements the Division’s existing sourcing efforts.
A report of the Investment Policy Committee (“IPC”) summarizing the details of the proposed investment is attached.
Division Staff and its real asset consultant, TorreyCove Capital Partners, 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. We have obtained a preliminary Disclosure Report of Political Contributions in accordance with the Council’s regulation governing political contributions (N.J.A.C. 17:16-4) and no political contributions have been disclosed. We will obtain an updated Disclosure Report at the time of closing.
Please note that the investment is authorized pursuant to Articles 69 and 71 of the Council’s regulations. Aether Real Assets SONJ Fund, L.P. will be considered a real asset investment, as defined under N.J.A.C. 17:16-71.1.
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 November 17, 2017. 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 November 29, 2017 meeting.
Source: State of New Jersey State Investment Council