Agenda Item 8

CHRIS CHRISTIE DEPARTMENT OF THE TREASURY

Governor DIVISION OF INVESTMENT
P.O. BOX 290
KIM GUADAGNO TRENTON, NJ 08625-0290 ANDREW P. SIDAMON-ERISTOFF
Lt. Governor State Treasurer

May 27, 2015

MEMORANDUM TO: The State Investment Council

FROM: Christopher McDonough

Director

SUBJECT: Och-Ziff Strategic Relationship Separate Accounts and Fund

Investments

The New Jersey Division of Investment (Division) is proposing a combination of new and
additional commitments of up to $900 million to existing Och-Ziff separate accounts
(collectively, the Platform) and two new commingled funds. The proposal includes additional
commitments of: (1) $300 million to OZSC II, L.P.; (2) $200 million to OZNJ Private
Opportunities, L.P.; (3) $100 million to OZNJ Real Estate Opportunities, L.P.; and (4) $100
million to OZNJ Real Asset Opportunities, L.P. In addition, the Division is proposing
commitments to the following new commingled investment funds: (1) $100 million to OZ
Energy Partners; and (2) $100 million to Och-Ziff Real Estate Credit Fund. This
memorandum is presented to the State Investment Council (the Council) pursuant to N.J.A.C.
17:16-69.9.

From 2010 through 2012, the Division proposed various commitments to separate accounts
managed by Och-Ziff Capital Management Group across the Platform, not to exceed $1.1 billion
in the aggregate, as follows: up to $700 million in OZSC, L.P.; up to $500 million in OZSC II,
L.P.; up to $400 million in OZNJ Private Opportunities, L.P.; up to $200 million in OZNJ Real
Estate Opportunities, L.P.; and up to $150 million in OZNJ Real Asset Opportunities, L.P. The
Platform invests in US and European structured and corporate public debt securities, as well as
private debt, real estate and real asset opportunities.

The Division is recommending this investment based on the following factors:

Strong returns: Investments in structured and corporate public credit securities have materially
outperformed their benchmarks with the inception to date returns ranking in the top quartile of
their strategy universe. The US structured credit strategy has outperformed the Barclays High
Yield Index and the HFRI Event Driven Distressed/Restructuring strategy by approximately 10%
annually since inception. The account focused on US & European corporate credit and European
structured credit has outperformed the same benchmarks by 5% annually since inception. The
private transactions, while early in their life cycle, are performing on track with expectations.

New Jersey Is an Equal Opportunity Employer Printed on Recycled and Recyclable Paper
Proposed Investment in Och-Ziff Strategic Relationship
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Opportunity set and ability to be nimble: The multi-disciplinary approach of the Platform
enables it to opportunistically shift focus to the most compelling risk-adjusted return
opportunities to capitalize on market dislocations. Exposures in the public strategy have shifted
away from value-driven opportunities early in the life of the portfolio to event-driven situations
today. The account has also taken advantage of private transactions that provide idiosyncratic
sources of return or an excess illiquidity premium. Opportunities will continue to arise from
traditional corporate distressed cycles in the US and Europe, distressed high yield energy
companies, structural regulatory changes within the banking sector, and the ability to provide
long-dated capital.
Favorable fee structure and better governance: Discounted fees and the structures unique
netting feature, in which the performance of all strategies within the Platform are netted against
each other before calculating Och-Ziffs incentive compensation, create a strong alignment of
interest. Netting the performance of different strategies is a favorable term and difficult to
replicate. The Division pays a management fee of 75 bps on Net Asset Value and 20%
performance compensation over a 6% hurdle rate, which is markedly below the typical market
fee structure. Furthermore, given the additional proposed commitments, the Division has
negotiated a management fee waiver for one year on the Platform. The Division also retains veto
rights over all private transactions in the Platform and has access to detailed investment
memoranda and the deal teams. Frequent and candid interactions with Och-Ziff have been
valuable in the management of the Divisions broader portfolio.

Reports of the Investment Policy Committee (IPC) summarizing the details of the proposed
investments are attached.

Division Staff and its private equity consultant, Strategic Investment Solutions, its hedge fund
consultant, Cliffwater LLC, and its real estate consultant, RVK, undertook extensive due
diligence on the proposed investments in accordance with the Divisions Alternative Investment
Due Diligence Procedures.

As part of its due diligence process, staff determined that the Platform has not engaged a third-
party solicitor (a "placement agent") in connection with New Jerseys potential investments.

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 the investments. We have obtained a
preliminary Disclosure Report of Political Contributions in accordance with the Councils
regulation governing political contributions (N.J.A.C. 17:16-4) and no political contributions
have been disclosed. We will obtain an updated Disclosure Report at the time of closing.

Please note that these investments are authorized pursuant to Subchapters 23, 69, and 71 of the
Councils regulations. OZSC II, L.P. is classified as a global diversified credit investment as
defined under N.J.A.C. 17:16-23.1. The OZNJ Private Opportunities, L.P. investment, currently
classified as a credit-oriented hedge fund, will be reclassified as a global diversified credit
investment as defined under N.J.A.C. 17:16-23.1. The real assets accounts, OZNJ Real Asset
Opportunities, L.P. and OZ Energy Partners, will be classified as a real asset investments as
defined under N.J.A.C. 17:16-71.1. The real estate accounts, OZNJ Real Estate Opportunities,
L.P. and Och-Ziff Real Estate Credit Fund, will be classified as a non-core real estate investment
as defined under N.J.A.C. 17:16-71.1.
Proposed Investment in Och-Ziff Strategic Relationship
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A formal written due diligence report for the proposed investment was sent to each member of
the IPC and a meeting of the Committee was held on May 15, 2015. In addition to the formal
written due diligence report, 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 Councils May 27, 2015 meeting.

Attachments
 Och-Ziff/NJ Strategic Relationship Proposed Commitments:

Total proposed new capital commitment: $900 million ($700 million to the Platform plus $200 million to two commingled funds)

Product/Strategy March 31, 2015 NAV Proposed addition Asset Allocation Category
($, mm) ($, mm)
Platform 700
OZSC
823 GDC
Public US structured credit
OZSC II
374 300 GDC
Public European structured credit, US & European Corporate credit
NJPO
189 200 GDC*
Private credit investments
NJRE
44 100 Real Estate Equity
Private real estate investments
NJRA
76 100 Private Real Assets
Private real asset investments

Commingled funds 200

Och-Ziff Real Estate Credit n/a 100 Real Estate Debt
OZ Energy Partners n/a 100 Private Real Assets
Total 900
Other OZ Investments
OZ Domestic Partners II, L.P. 202 n/a Hedge Fund
Och-Ziff Real Estate Parallel Fund III E, L.P. 5 n/a Real Estate Equity
*Currently in the process of being reclassified from credit oriented HFs to GDC
 Separate Account Investment Platform INVESTMENT POLICY COMMITTEE REPORT TO THE STATE INVESTMENT COUNCIL

Fund Name: Och-Ziff New Jersey Investment Platform May 27, 2015
Contact Info: Suraj Panjwani, 9 West 57th Street, New York, NY
Fund Details:
Total Firm Assets: $47.2 billion (as of May 1, 2015) Key Investment Professionals:
Strategy: Opportunistic David Windreich, Head of U.S. and European Investing for Och-Ziff and a member of Och-Ziffs Board of Directors and Partner Management Committee. Mr. Windreich is also an
Executive Managing Director. Prior to joining Och-Ziff at its inception in 1994, Mr. Windreich was a Vice President in the Equity Derivatives Department of Goldman, Sachs & Co.
Year Founded: 1994 James Levin, Executive Managing Director and Head of Global Credit for Och-Ziff, including corporate and structured credit, and a member of Och-Ziff's Partner Management Committee.
Headquarters: New York, NY Prior to joining Och-Ziff in 2006, Mr. Levin was an Associate at Dune Capital Management LP
Total Platform GP Commitment: 5% ($90 Million) Rick Lyon, Executive Managing Director, Head of OZ Energy for Och-Ziff and Co-Chair of OZ Energy Partners Investment Committee. Prior to joining Och-Ziff in 2003, Mr. Lyon was a
Structure Outline Managing Director at Goldman, Sachs & Co. in the Equities Divisions Principal Strategies Group (previously the Risk Arbitrage Department).
Steven Orbuch, Executive Managing Director of Och-Ziff and a Founder, President and Senior Principal of Och-Ziff Real Estate (OZRE). Prior to forming OZRE in 2003, Mr. Orbuch
Separate Accounts Strategy was a Managing Director with Blackstone Real Estate Advisors
OZSC Global Diversified Credit
OZSC II Global Diversified Credit (additional $300 million)
NJPO Global Diversified Credit1 (additional $200 million)
NJRE Real Estate (additional $100 million)
NJRA Real Assets (additional $100 million)
Investment Summary Existing Platform Investments
Och-Ziff Capital Management Group (ticker symbol OZM) is an NYSE-listed company with an approximate $5.9 billion market cap (as of Separate Accounts Vintage Year Strategy Returns as of 3/31/15
May 20, 2015) that was founded in 1994 by Daniel S. Och. The Firm has grown to be one of the largest institutional alternative asset managers OZSC 2010 Global Diversified Credit 18.25% Net IRR, 2.06x Net MOIC
in the world, with $47.2 billion in assets under management. OZ has built an experienced investment management team consisting of 165
OZSC II 2013 Global Diversified Credit 8.62% Net IRR, 1.11x Net MOIC
investment professional working from its headquarters in New York City and in offices in London, Hong Kong, Mumbai, Beijing, Dubai and
NJPO 2013 Global Diversified Credit 1 8.79% Net IRR, 1.07x Net MOIC
Shanghai. The Platform invests in US and European structured and corporate public debt securities as well as private debt, real estate and real
asset opportunities. The multi-disciplinary approach of the Platform enables it to opportunistically shift focus to the most compelling risk- NJRE 2013 Real Estate 7.48% Net IRR, 1.04x Net MOIC
adjusted return opportunities to capitalize on market dislocations. The proposed addition of up to $700 million in the Platform is intended to NJRA 2013 Real Assets 7.94% Net IRR, 1.04x Net MOIC
allow OZ to continue to make attractive investments in these same areas.

IRR = Internal Rate of Return; MOIC= Multiple on Invested Capital

Vehicle Information:
Inception: 2013 Auditor: Ernst & Young
Fund Size ($mil.): $1.89 billion aggregate capital commitments across the 5 separate accounts, including Och-Ziff commitment Legal Counsel: Schulte Roth & Zabel LLP
Management Fee: 0.75% per year of the Platform's net asset value
Carry: 20% (aggregated across platform)
Hurdle Rate: 6% preferred return (aggregated across platform), subject to GP catch-up
Management Fee Offsets: 100% management fee offset for directors', break-up, standby or commitment fees
Term: An initial term of five (5) years, which shall automatically be extended on five (5) year terms thereafter.
Note: Given the additional proposed commitments, the Division has negotiated a management fee waiver for one year on the Platform

NJ AIP Program
Recommended Allocation ($mil.): $700,000,000 LP Advisory Board Membership: Yes
% of New Commitments: 98.50% Consultant Recommendation: Yes
Placement Agent: No
Compliance w/ Division Placement Agent Policy: N/A
Compliance w/ SIC Political Contribution Reg: Yes

1. NJPO is currently classified as a credit-oriented hedge fund, but will be reclassified as a global diversified credit investment
*This review memorandum was prepared in accordance with the State Investment Council rules governing the Alternatives Investment Program and the policies and procedures related thereto.
 Real Assets INVESTMENT POLICY COMMITTEE REPORT TO THE STATE INVESTMENT COUNCIL

Fund Name: OZ Energy Partners, L.P. May 27, 2015

Contact Info: Suraj Panjwani, 9 West 57th Street, New York, NY
Fund Details:
Total Firm Assets ($bil.): 47.2 billion (as of May 1, 2015) Key Investment Professionals:
Strategy: Real Assets Rick Lyon, Executive Managing Director, Head of OZ Energy for Och-Ziff and Co-Chair of OZ Energy Partners Investment Committee. Prior to joining Och-Ziff in 2003, Mr.
Lyon was a Managing Director at Goldman, Sachs & Co. in the Equities Divisions Principal Strategies Group (previously the Risk Arbitrage Department).
Year Founded: 1994
Mark Bisso, Managing Director and Co-Chair of OZ Energy Partners Investment Committee. In addition, Mr. Bisso will be responsible for managing Och-Ziffs Houston
Headquarters: New York, NY office. Prior to joining Och-Ziff in March 2015, Mr. Bisso was most recently a Principal with ArcLight Capital Partners, LLC, where he spent 11 years.
GP Commitment: at least 8%, up to $60 million Tony Gordon, Managing Director focusing on Energy for Och-Ziff. Prior to joining Och-Ziff in 2005, Mr. Gordon was the Founder and Managing Member of Gordon Energy
Partners. Prior to that, he spent over 8 years at Goldman, Sachs & Co., first as a Vice President then as a Managing Director focusing on principal and commodity investments in
the energy sector.
David Windreich, Head of U.S. and European Investing for Och-Ziff and a member of Och-Ziffs Board of Directors and Partner Management Committee. Mr. Windreich is
also an Executive Managing Director. Prior to joining Och-Ziff at its inception in 1994, Mr. Windreich was a Vice President in the Equity Derivatives Department of Goldman,
Sachs & Co.
James Levin, Executive Managing Director and Head of Global Credit for Och-Ziff, including corporate and structured credit, and a member of Och-Ziff's Partner Management
Committee. Prior to joining Och-Ziff in 2006, Mr. Levin was an Associate at Dune Capital Management LP.

Investment Summary Existing and Prior Funds

OZ Energy Partners is being formed by Och-Ziff to build on its successful energy private equity strategy. The Funds Vintage Year Strategy Returns as of 12/31/2014
Fund is targeting $750 million in capital commitments to focus on opportunistic middle-market energy OZ North American Energy Composite 2006 Real Asset 17.90% Net IRR, 1.40x Net TVPI, 1.06x Net DPI
investments in North America across the oil and natural gas upstream, midstream and energy services sectors.
The Fund will primarily target equity commitments ranging from $50 million to $150 million and can be
structured as debt, equity or equity like securities. Particular investment themes include: asset acquisitions
from stressed sellers, equity joint ventures with public and private E&P operators, structured equity and
working interest financings and distressed debt investment for ownership and/or control. OZ Energys
investment strategy is anchored by an underwriting approach that focuses on the intrinsic, fundamental
earnings power and value of the underlying assets of each energy investment. OZ Energy draws upon its
energy expertise, along with the broad capabilities of the global Och-Ziff investment platform to partner with
quality management teams in an effort to increase the value of each investment.

IRR = Internal Rate of Return; TVPI = Total Value to Paid-In; DPI = Distributions to Paid-In
Vehicle Information:
Inception: 2015 (expected) Auditor: Ernst & Young
Fund Size ($mil.): $750 million (targeted) Legal Counsel: Debevoise & Plimpton LLP
Management Fee: 0.75% of NAV
Carry: 20% (aggregate across OZNJ platform)
Hurdle Rate: 6% (aggregate across OZNJ platform)
100% fee offset for directors;
transaction, monitoring, break-up and
Mangagement Fee Offset: similar advisory fees

NJ AIP Program
Recommended Allocation ($mil.): $100,000,000 LP Advisory Board Membership: TBD
% of Fund: 13.33% Consultant Recommendation: Yes
Placement Agent: No
Compliance w/ Division Placement Agent Policy: N/A
Compliance w/ SIC Political Contribution Reg: Yes

*This review memorandum was prepared in accordance with the State Investment Council rules governing the Alternatives Investment Program and the policies and procedures related thereto.
 Real Estate INVESTMENT POLICY COMMITTEE REPORT TO THE STATE INVESTMENT COUNCIL

Fund Name: Och-Ziff Real Estate Credit Fund, L.P. May 27, 2015
Contact Info: Suraj Panjwani, 9 West 57th Street, New York, NY
Fund Details:
Total Firm Assets ($bil.): $47.2 billion (as of May 1, 2015) Key Investment Professionals:
Strategy: Real Estate- Debt Steven Orbuch, Executive Managing Director of Och-Ziff and a Founder, President and Senior Principal of Och-Ziff Real Estate (OZRE). Prior to forming OZRE in 2003, Mr. Orbuch was a Managing
Director with Blackstone Real Estate Advisors.
Year Founded: 1994 James Levin, Executive Managing Director and Head of Global Credit for Och-Ziff, including corporate and structured credit, and a member of Och-Ziff's Partner Management Committee. Prior to joining
Headquarters: New York, NY Och-Ziff in 2006, Mr. Levin was an Associate at Dune Capital Management LP.
GP Commitment: at least $80 million David Windreich, Head of U.S. and European Investing for Och-Ziff and a member of Och-Ziffs Board of Directors and Partner Management Committee. Mr. Windreich is also an Executive Managing
Director. Prior to joining Och-Ziff at its inception in 1994, Mr. Windreich was a Vice President in the Equity Derivatives Department of Goldman, Sachs & Co.
Joshua Kirkham, Senior Principal, Real Estate. Mr. Kirkham is involved in transactions across various asset classes, including development, parking, housing, and related development investments with
primary responsibility for OZREs residential related investment activities as well as day-to-day oversight and management of OZREs debt-related investments. Prior to joining OZRE, Mr. Kirkham worked
in the Real Estate Principal Investment Area of Goldman, Sachs & Co. where he was involved in structuring joint venture equity relationships with developers across a variety of asset classes.
Daniel Wurwarg, Managing Director, Real Estate. Mr. Wurwarg is involved in transactions across various asset classes, with a primary responsibility for day-to-day oversight and management of OZREs
debt-related investments. Prior to joining Och-Ziff, he was an Associate at AREA Property Partners where he was focused on acquisitions.

Investment Summary Existing and Prior Funds

The Fund will focus on real estate credit investments in North America, primarily in the United States, across multiple types of real estate Funds Vintage Year Strategy Returns as of 12/31/2014
and various securities. Investments will derive value from various real estate assets including traditional cash flowing assets (e.g., Och-Ziff North American RE Credit Composite 2007-2014 Non-core real estate 17.1% Net IRR, 1.3x Net MOIC, 130% DPI
multifamily, office, retail), non-traditional niche assets (e.g., gaming, housing, senior housing, golf courses), transitional assets, ground
leases, corporate real estate and real estate management companies. The transactions can be structured as first-lien loans, mezzanine
loans, subordinate notes, B notes, loan portfolios, preferred equity, ground leases, sale leasebacks and other credit instruments. The Fund
will target low double digit returns (net of expenses) with a significant current income component. OZRE Credit is the intersection of Och-
Ziffs experience in credit and real estate investing, both of which have generated attractive returns across market cycles. The team is led
by James Levin, Head of Global Credit, and Steve Orbuch, Founder, President and Senior Principal of OZRE.

IRR = Internal Rate of Return; MOIC= Multiple on Invested Capital; DPI = Distributions to Paid-In
Vehicle Information:
Inception: 2015 (expected) Auditor: Ernst & Young
Fund Size ($mil.): $800 million (targeted) Legal Counsel: Debevoise & Plimpton LLP
Management Fee: 0.75% of NAV
Carry: 20% (aggregate across OZNJ platform)
Hurdle Rate: 6% (aggregate across OZNJ platform)
100% fee offset for directors; transaction, monitoring, break-up and similar
Management Fee Offset: advisory fees

NJ AIP Program
Recommended Allocation ($mil.): $100,000,000 LP Advisory Board Membership: TBD
% of Fund: 12.50% Consultant Recommendation: Yes
Placement Agent: No
Compliance w/ Division Placement Agent Policy: N/A
Compliance w/ SIC Political Contribution Reg: Yes

*This review memorandum was prepared in accordance with the State Investment Council rules governing the Alternatives Investment Program and the policies and procedures related thereto.