Memorandum to: State Investment Council
From: Timothy Walsh, Director
Subject: Proposed Investments in Regiment Capital Ltd. Fund
The New Jersey Division of Investment (“Division”) is proposing an investment of $150 million in Regiment Capital Ltd Fund. This memorandum is presented to the State Investment Council (the “Council”) pursuant to N.J.A.C. 17:16-69.9.
Investment Rationale:
- Focus on Risk-Adjusted Returns & Protection of Capital: Regiment’s philosophy is to conduct disciplined, credit-intensive research with a particular focus on risk-adjusted returns and protecting capital.
- Credit Hedge Fund Portfolio Diversification: Given the portfolio’s current tilt towards stressed and distressed type managers, Regiment’s capital protection theme and market neutral strategy lends itself to diversify the credit hedge fund and overall hedge fund portfolio.
- Experienced & Stable Team: Regiment has maintained a stable investment team, and the three portfolio managers have all worked together since the inception of the firm.
- Terms: The fund has better than average fees compared to other top tier credit funds, charging a 1.25% management fee and a 20% performance fee. In addition, the fund has a preferred return equal to 3-month LIBOR.
A report of the Investment Policy Committee (“IPC”) summarizing the details of the proposed investment is attached.
Division of 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 each investment. In addition, each proposed investment must comply with the Council’s regulation governing political contributions (N.J.A.C. 17:16-4).
Please note that these investments are authorized pursuant to Articles 69 and 100 of the Council’s regulations. The Regiment Capital Ltd. Fund will be considered a credit investment, as defined under N.J.A.C. 17:16-100.1.
Formal written due diligence reports for the proposed investments were sent to each member of the IPC and a meeting of the Committee was held on November 22, 2011. In addition to the formal written due diligence reports, 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 December 8, 2011 meeting.
Source: State of New Jersey State Investment Council