New Mexico boosts PE target to 12 pct

  • The $14.2 bln Land Grant Permanent Fund’s target rises from 10 percent
  • State tables reducing target allocation of $4.7 bln Severance Tax Permanent Fund
  • Continues to pare PE portfolio through secondary sales

The raising of the target, made at the investment council’s August 26 meeting, gives the state plenty of room to grow the portfolio. Private equity accounted for about $1.2 billion, or more than 8 percent of the Land Grant Permanent Fund’s assets as of June 30, according to New Mexico documents. The investment council manages investments for New Mexico’s permanent funds, which include the $14.2 billion Land Grant Permanent Fund, the $4.7 billion Severance Tax Permanent Fund, and several smaller entities.

At the same time New Mexico State Investment Council continues to reduce the number of non-core managers in the private equity portfolio of its permanent funds. The investment council plans on halving the number of active funds from about 120 and the number of managers from about 80. 

As part of that effort the investment council has been selling private equity holdings on the secondary market. In early August, New Mexico sold its stakes in 3i Eurofund VApax Europe VI and Apax Europe VII. In April, the investment council sold its holdings in Cinven’s third and fourth funds, as well as its stakes in Clayton Dubilier & Rice Fund VII and Clayton Dubilier & Rice Fund VIII.

Investment staff considers several factors in determining which funds to sell, including performance, the quality of the relationship it has with the manager and issues relating to a pay-to-play scandal that affected several limited partners, fund managers and placement agents in the latter half of the previous decade. 

New Mexico is still collecting settlements from some of the general partners involved in the scandal. In June, Markstone Capital agreed to pay a $1 million settlement to the investment council in relation to its hiring of former Michigan Congressman Robert Carr, who helped the firm secure a $20 million commitment from New Mexico. Markstone Capital denied “any and all” wrongdoing in its settlement, according to a press release.

Also at its August 26 meeting, the investment council tabled a suggested 2 percentage point reduction to the Severance Tax Permanent Fund’s private equity target allocation pending additional analysis of New Mexico’s in-state private equity program, which will be included in the Severance Tax Permanent Fund’s allocation moving forward, Wollman said. The Severance Tax Permanent Fund’s $552.2 million private equity portfolio was slightly above its 10 percent target allocation as of June 30.