Memorandum to: State Investment Council
From: Timothy Walsh, Director
Subject: Proposed Investment in Bay Pond Partners, LP
The New Jersey Division of Investment (the “Division”) is proposing up to $150 million investment in Bay Pond Partners, LP Fund. 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 the investment for a number of reasons:
- Experienced Portfolio Manager: Fund managed by Nick Adams, one of the most experienced and highly respected financial sector portfolio managers in the industry.
- Flexible Mandate: While Bay Pond is primarily a long/short equity fund, it has a flexible mandate to invest across capital structure, CDS, commodities, currencies and sovereigns. Mr. Adams has successfully used CDS, commodities and sovereigns to hedge macro risks in the portfolio.
- Wellington Asset Management Umbrella: $619 billion asset management company with a very loyal culture. Portfolio managers with successful long-term long only track records are provided the opportunity to evolve into Long/Short Equity sector portfolio managers.
- Favorable terms: Better than average management fee at 1%.
- Attractive return profile: 22.5% annualized return from inception in 1994 to November 2011 placing the fund in the top decile of long/short hedge fund managers since inception and in the first quartile for all period three-years and longer.
- Addresses Underweight: The Fund is currently over $1.2 billion underweight the equity oriented hedge fund category. The proposed allocation will further diversify the equity hedge portfolio and the overall Global Growth asset class.
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 Bay Pond Partners, LP 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 18, 2012. 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 26, 2012 meeting.
Source: State of New Jersey State Investment Council