New Jersey Division of Investment, which manages investments for the New Jersey Pension Fund, Trenton, paid $422 million in performance-related incentive fees to external managers of alternative investments for the fiscal year ended June 30.
The division paid $606 million in these fees, called performance allocations, for the fiscal year ended June 30, 2021.
The drop in performance allocation payments affected all alternative assets classes, said an annual report by the State Investment Council, which governs investment policies for the division of investment.
The alternative categories are hedge funds, private equity, real estate, private credit, real asset funds and opportunistic funds.
The $26.1 billion in alternative assets represented 30% of the $87.5 billion in total New Jersey Pension Fund assets as of June 30, the end of the previous fiscal year.
As of Dec. 31, the pension fund had $83.7 billion in assets.
The division also paid $306 million in management fees and expenses to alternative investments firms as well as $51 million to advisers in the high-yield fixed income, small-cap equity and emerging managers asset categories, plus assorted internal management, consulting, legal and custodial fees.
For the year ended June 30, 2021, the combined fees for alternatives managers, external advisers, internal management and other services were $356 million, nearly the same as those combined fees of $357 million for the fiscal year ended June 30, 2022.
Private equity accounted for the largest portion of performance fees — $240 million — which was more than the fees for all of the other categories combined.
For fiscal year 2022, alternative investments “earned a net return of 5.38% and generated $1.86 billion of net profits,” the State Investment Council report said.
They have been “a significant driver of favorable returns for the total Pension Fund over longer-term periods,” the report said. For the 10 years ended June 30, they had a net annualized return of 9.3%, “in line with the Total Pension Fund,” the report said. The net, 10-year annualized return was 7.8%.