Proposed Investment in Cevian Capital II

Memorandum to: State Investment Council
From: Timothy Walsh, Director
Subject: Proposed Investment in Cevian Capital II, LP

The New Jersey Division of Investment (the “Division”) is proposing up to $150 million investment in Cevian Capital II, 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 this investment for a number of reasons:

  • Experienced Investment Team: Cevian is the largest and most experienced activist manager in Europe with a 15 year track record.
  • Investment Style: Hands-on and constructive. Conducts intensive research and creates action plan to enhance the value of the company before making investment or engaging in a dialogue with the management. Improves governance, operations and frequently joins the board of directors to affect change.
  • Attractive return profile: Fund’s annualized return of 11.46% since inception places it in the top quartile among Event Driven hedge fund managers. Additionally, the fund has significantly outperformed the MSCI Europe Index over all periods since inception.
  • Addresses Underweight: Pension Fund is currently over $1.2 billion underweight the equity oriented hedge fund category. The proposed allocation will further diversify the equity hedge fund 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 Cevian Capital II, LP 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 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