Imagine your job is to invest the retirement money of 700,000 state workers.

Next, imagine you invested some of that money directly in Merrill Lynch and Citigroup before watching their shares plummet. Imagine you sold half your stake Lehman Brothers at a loss just weeks after taking it. Imagine you put some of the money into a buyout fund that made a seemingly irrational investment in MBIA last December. Imagine the hedge fund industry started recording some of its biggest losses ever and the private equity industry nearly grounded to a halt shortly after you started investing that retirement money into them.

Your imagination is Bill Clark's reality.

Clark is the director of the division of investment for the state of New Jersey, which has one of the biggest state pension funds in the country. A former insurance executive, Clark oversees the $77 billion investment portfolio for the state's workers.

In recent years, the group has shifted its investment strategy away from a standard mix of stocks and bonds to include exposure to commodities, hedge funds, private equity funds, and real estate. The goal is to allocate 19 percent to so-called alternative investments, which is considered aggressive for a state pension fund. To date, the fund has committed 12 percent to that category, and it still has 7 percent to go.

This means that Clark's phone is ringing. So far, New Jersey has invested in funds from Apollo, Blackstone, TPG Partners, Wilbur Ross, Carlyle, Och-Ziff, and dozens of others, big and small. It invested with Warburg Pincus, which made the $1 billion investment in MBIA that so many have questioned. It's in the process of investing with Bill Ackman's Pershing Square Capital, which has famously taken the opposite side of the MBIA argument than Warburg did.

But Clark, a friendly and candid 47-year old who forgoes the coat and tie in his Trenton office during the legislature's August break, really put New Jersey on the it-list of capital sources when he invested $700 million in two stock offerings from Citigroup and Merrill Lynch in January. The investments were made alongside sovereign wealth funds from Singapore, Kuwait, and Korea.

But they were met with some skepticism. Since then, of course, Citigroup shares have fallen by 36 percent and Merrill Lynch's by 52 percent. Lehman shares, which Clark bought in a similar offering in June for $28 each, are down 42 percent to $16 today.

Clark says the fund was significantly underweight in the financial sector when it made the decision in January. "The reason we did the Merrill and Citi deals were that we got exposure but we used our size to get better terms than you could get in the public markets, and with a lower risk profile than you'd get in public market," he says.

It turns out that the terms in the Merrill deal have essentially rescued New Jersey's $300 million investment. The investors negotiated for an anti-dilution provision so that if Merrill issued more common stock within one year, the investors could convert their stock at the lower price. Neither the investors nor Merrill thought it would have to.