UNITED STATES - The New Jersey Division of Investment has established a $300m (€212m) separate account with Och-Ziff Capital Management to invest in structured credit investment products.

The pension fund decided at its 21 January board meeting to adopt a strategy which will include moving it into residential and commercial mortgage-backed securities (MBS).

The move is designed to capitalise on perceived dislocations in the commercial and residential MBS market.

The pension fund believes commercial banks and other holders of MBS are still being forced to sell these assets. This presents buying opportunities as there are a limited number of qualified buyers, given the intense amount of quantitative analysis needed to evaluate the securities.

Many structured product investments are left trading at levels that offer attractive returns in all but the most adverse economic scenarios.

New Jersey has predicted the separate account will produce 10-13% unleveraged IRR. However, pension fund officials do not see this market activity lasting forever as the more capital is deployed the fewer investment opportunities there will eventually be.

The Och-Ziff Structured Credit Fund separate account is being treated as a bank loan fund by  Och-Ziff Capital Management structured credit team which began buildings its position in summer 2007. The team now has seven dedicated employees and currently manages $1.6bn in assets.

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