Proposed Investment in BlueCrest Capital International

Memorandum to: State Investment Council
From: Timothy Walsh, Director
Subject: Proposed Investment in BlueCrest Capital International Limited (BCI)

The New Jersey Division of Investment (the “Division”) is proposing an investment of up to $200 million in BlueCrest Capital International Limited (“BCI”). 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 for a number of reasons:

  • Attractive Returns: BCI has generated excellent absolute and risk-adjusted performance with a since inception annualized return of 13.72% and a Sharpe ratio of 1.85 through January 2012. This performance places BCI in the top quartile of all hedge funds and global macro hedge funds on an absolute performance basis and the top percentile on a risk adjusted performance basis.
  • Complementary Exposure: BCI complements the portfolio’s direct absolute return managers well with correlations of: Brevan Howard .26, Winton .28, and Lynx .18. The fund also has low correlation to other macro managers under consideration.
  • Diversified Portfolio: The fund trades a highly diversified portfolio of securities across the foreign exchange, global fixed income, and global equities markets. The current breakdown by strategy is as follows: Rates 60%, Fixed Income Absolute Return 20%, Fixed Income Relative Value 5%, Equity Derivatives 3%, Liquid Credit 7%, Cross Asset Convexity 3%, and Venture Finance 1% (amortizing out of fund).
  • Experienced Head Portfolio Manager: Michael Platt is widely considered one of the best Macro managers in the industry. Prior to establishing BlueCrest in April 2000, he was a managing director at JP Morgan in London where he was responsible for relative value proprietary trading. Mr. Platt joined JP Morgan in September 1991 and he assumed responsibility for developing its swaps business and subsequently its options trading business. In April 1996, he became head of trading for all swaps products relating to the eleven founder nations of the European single currency.

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 BlueCrest Capital International Limited (BCI) fund will be considered an opportunistic 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 March 14, 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 March 22, 2012 meeting.

Source: State of New Jersey State Investment Council