Bill Clark, director of investments, developed a savvy strategy to tap into commodities at the right time. He purchased index-linked notes to gain quick exposure to commodities during a mid-year correction and subsequently profited from the late 2007 rally as oil prices shot up. New Jersey was in the middle of a search for commodity managers at the time, but Clark acted earlier, knowing it would take a while to select managers. The fund hired Schroder Investment Management and Gresham Investment Management in the fall.
In another timely call, New Jersey invested in almost every distressed securities fund on offer after the subprime crash, allocating money to PIMCO, BlackRock, Oaktree Capital Management and Angelo, Gordon & Co., among others. The division placed about $2 billion each with private equity, hedge fund and real estate managers in 2007, despite union opposition to hiring third-party managers. The $81 billion plan also partnered with Lehman Brothers to create the New Jersey Private Investment Fund to invest in private companies, private equity funds and private placements in the state. Clark bought put options in early 2007 during the rising market, which helped protect the in-house portfolio against losses later in the year.
In early 2007, Clark predicted a decline in the housing market and dry-up of liquidity. He and his staff began underweighting the financial sector in March, knowing that many large firms would come under scrutiny due to subprime losses. He also divested from companies that own ratings agencies, such as McGraw Hill, as they fell out of favor due to ratings downgrades.
In just a couple of years, New Jersey has transformed from a plan that managed all its assets in-house— it hired its first external equity and bond managers last year—to one of the most dynamic pensions in the country. Case in point: a recent $700 million investment in preferred shares of Citigroup and Merrill Lynch & Co. alongside three sovereign wealth funds. The fund is currently in talks with a several large domestic and international pension plans to form a consortium that could invest in faltering firms. Considering that the Division of Investment operates within a highly-politicized and much scrutinized system, this rapid pace of change is an incredible achievement.