Poor performance in domestic and international equities markets in the last quarter of 2018 put a dent in the New Jersey Investment Council’s positive return streak, interrupting the $71 billion institutional investor’s positive overall monthly year-to-date returns since July 2016.
The council has a $32.9 billion allocation to US equity, non-US developed markets equity, and emerging markets equity, which generated -8.06%, -13.76%, and -15.30%, respectively, as of December 31, 2018. The total fund generated year-to-date, and one-, three-, and five-year annualized returns of -1.95%, 4.16%, 6.47%, and 5.41%, respectively.
Just before the markets spiked, the council executed a $1 billion US equity sell program in late September, lowering its exposure to the asset class from about 32% to 28%. Subsequently, in the midst of the market turmoil, the council took advantage of the relatively low prices, “which were trading 15% below their all-time highs reached in late September” and executed a $500 million US equity purchase program at the very end of the year, according to a report.
The council’s top equity holdings include investments in Microsoft (4.04% of total portfolio), Amazon (3.73%), Alphabet (3.10%), Vanguard Total Stock Market ET (2.48%), and JPMorgan Chase & Co. (2.02%).
The council’s investment consultant, TorreyCove Capital Partners, also submitted recommended “Base Case” pacing plans to maintain the portfolio’s exposure to private equity and debt, and private real assets, to approximately 10.25% and 2.50%, respectively.
TorreyCove recommended the council commit about $600 million in 2019 and $1.2 billion to $1.4 billion annually from 2020 through 2025 to private equity and debt to gradually reduce the current 11.86% allocation to 10.25%.
“Private equity tends to exhibit higher performance during weak economic cycles, making continued commitments accretive to overall performance across the various stages of the economic cycle,” the TorreyCove report said.
For the investor’s real assets portfolio, the consultant recommended the council commit $250 million in 2019, and $250 million to $300 million annually in 2020 through 2025 to maintain the current 2.78% allocation close to the 2.50% target.
The council also submitted the below redemptions to funds in its Risk Mitigation Strategy and Global Diversified Credit portfolios, calculating to about $885 million. The investments were the Lynx Common (Bermuda) Ltd, Scopia PX, Woodley Park NJ, and GSO Credit Partners. Media representatives of the council did not respond to questions regarding the redemptions by press time.