But in July, Merrill went back to the market, triggering the anti-dilution provision. New Jersey converted its shares to common stock, which it must hold until January. "Basically, we are flat on a $300 million investment where the stock has gone down 50 percent," Clark says.

Not bad. But as Clark watched his financial investments plummet from January to June, why would he approach Lehman to be part of its June 9 capital raise? "We looked at their asset management business and we thought there was a lot of value there the market wasn't pricing in," he says. "We still think that."

Clark bought $120 million in Lehman common shares and another $60 million in preferred stock for a total amount so small relative to the entire offering that Clark describes New Jersey as "a pimple" on the deal.

It sounds like backpedaling, and to some extent it is. By the end of July, Clark says, New Jersey had sold off about half its Lehman common shares at a loss as part of a broader portfolio shift away from the financial sector. Increased concern over the frozen credit markets prompted the shift in asset allocation.

It still holds its Citigroup preferred shares, which have a 7 percent coupon.

With the turmoil of the last year and with New Jersey's high profile, controversial equity stakes in the troubled financial sector, how is Clark faring? From an investment perspective, he's holding on.

The pension fund fell 3.1 percent in the year that ended on June 30, 2008. The S&P 500 fell by about 14 percent during the same period. Moreover, most of Clark's losses came in the final, fateful month of that period. The pension fund lost 4.9 percent in June.

What's next for the fund? Aside from selecting more fund managers to take on the remaining 7 percent of its alternatives portfolio, Clark is casting a wide net for opportunities. He's deeply troubled by the fact that commercial and consumer lending markets have nearly shut down, and he's looking for ways to tap that market.

Clark is looking into ways the New Jersey fund could use its own balance sheet to fund buyout deals or other loans. He's also exploring the possibility of partnering with other pension funds or sovereign wealth funds to be able to reach better terms on more attractive deals by pooling more resources.

"What we learned from the Merrill and Citi deals is when you're part of a group that has a lot of capital, you can drive much better deals than when you get picked off one at time," Clark says. "The concept could apply to a bunch of other asset classes as well. It's early. Every state has its own issues, its own culture. It's not easy."

What New Jersey's 700,000 workers will have to say about their pension fund turning into a bank will be another story for another day. For many, it may be better left to the imagination.

It's up to Clark to make it reality.