Proposed Investment in Stone Milliner Macro Fund, L.P.

Memorandum to: State Investment Council
From: Christopher McDonough, Director
Subject: Proposed Investment in Stone Milliner Macro Fund, L.P.

The New Jersey Division of Investment (“Division”) is proposing an investment of up to $250 million in Stone Milliner Macro Fund, L.P (“SMMF”). This memorandum is presented to the State Investment Council (the “Council”) pursuant to N.J.A.C. 17:16-69.9.

Stone Milliner Asset Management AG is a $4.1 billion global macro manager that seeks to consistently generate attractive risk-adjusted returns across asset classes in developed and emerging markets. The platform utilizes a multi-portfolio manager model and invests predominantly in currencies and fixed income, and opportunistically in equity index futures, credit and commodities.

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

  • Conservative, Experienced Portfolio Managers with Successful Track Record: Performance since inception for SMMF has been strong, with an annualized return of 11.54% since inception in January 2012 through April 2015, with 5.92% annualized volatility and a resulting Sharpe Ratio of 1.92. Stone Milliner’s risk-adjusted returns are top decile against the HFRI Macro universe on a 1-year, 3-years and since inception basis, as well as top decile since inception against the HFRI universe. The team’s track-record from Moore Capital goes back to January 2006, including difficult markets such as in 2008 when they produced an impressive return of 14.33%, significantly outperforming the HFRI Fund Weighted index loss of -19.03% and HFRI Macro (Total) index return of 4.83%.
  • Differentiated Return Profile and Exposure: Stone Milliner’s returns exhibit slightly negative equity market beta. Stone Milliner’s beta to MSCI All Country World Index (ACWI) is -0.14, – 0.05, and -0.03 on a 3-year and since inception basis, respectively. The consistent returns combined with negative/low beta to the equity markets and to the existing managers in the Risk Mitigation bucket make Stone Milliner’s unique and complementary to the Pension Fund’s current portfolio.
  • Solid Backing and Successful Business Growth: Stone Milliner (the “Firm”) was able to launch with $1 billion of assets from Moore Capital along with Moore’s full back and middle office support. With a solid foundation, the Firm successfully grew the business into a robust $4.1 billion institutional platform. In June 2015, SMMF fully separated from Moore Capital’s front and back office support.
  • Attractive Portfolio Manager Structure: Stone Milliner’s investment style is a hybrid structure which has the benefit of a multi-trader perspective while the majority of risk is overseen by the Co-CIOs. Similar to other multi-trader firms, Stone Milliner has wider breath for idea generation.

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. 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 100 of the Council’s regulations. Stone Milliner Macro Fund, L.P. will be considered a global macro 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 July 9, 2015. 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 July 22, 2015 meeting.

Source: State of New Jersey State Investment Council