New Mexico to cut PE program to 30 or fewer managers

  • New Mexico has been cutting relationships for several years
  • Council adopts new strategy mix for PE, includes less venture
  • New Mexico to commit $550 mln to $650 mln per year

New Mexico State Investment Council is moving its private equity program into the hands of 30 or fewer core managers, according to spokesman Charles Wollmann.

New Mexico’s $2 billion PE program currently includes 52 funds, managed by 23 general partners, deemed “core” to the sovereign-wealth fund’s long-term investment plans moving forward, a presentation from the council’s Jan. 9 meeting shows. Another 70 funds managed by 58 GPs were deemed “non-core.”

Staff will cull managers from the portfolio by committing larger amounts to fewer funds, letting older non-core managers age out of the portfolio. The $23.4 billion fund has no immediate plans to sell some older stakes in PE funds through the secondary market, Wollmann said.

“We’ve been working on trying to reduce the number [of GPs] for awhile,” Wollmann said, adding that it will take some time to “roll off” older commitments made before New Mexico fired consultant Aldus Equity in the wake of a pay-to-play scandal. New Mexico stopped making new commitments for a brief period in 2009 and 2010 following the scandal.

New Mexico plans to commit between $550 million and $650 million to private equity each year for the next several years, typically distributing those commitments across six to eight funds, Wollmann said.

The State Investment Council held 8.5 percent of its investment portfolio in PE as of Nov. 30 and expects to meet its 11 percent target allocation for the asset class by 2021, the Jan. 9 presentation shows.

Several government LPs, including California Public Employees’ Retirement System, in recent years made efforts to consolidate the number of relationships within their private equity portfolios. The effort proved difficult for CalPERS, whose consultant found the plan limited the $355.4 billion public pension to commit enough to maintain its 8 percent allocation to the asset class.

New Mexico’s program is considerably smaller than the $26.4 billion PE portfolio overseen by CalPERS, which needs to pledge between $7 billion and $10 billion to new PE investments each year to meet its allocation requirements.

Last year, New Mexico committed $613 million marked as 2017 vintage funds, an 18 percent increase from the previous year and well within the range it set for its commitment pacing, according to Jan. 9 meeting materials.

“Some of our managers are oversubscribed, especially as of late. So occasionally we do get … cut back. It doesn’t happen often but it does happen,” Wollmann said, adding that limited access to certain funds is one reason New Mexico won’t be targeting as many venture capital vehicles moving forward.

In addition to approving the plan to scale down the number of managers in its private equity portfolio, the council approved a new portfolio-construction mix that would see the sovereign-wealth fund directing more commitments toward buyout funds and North American managers.

Allocations to sub-strategies like special situations and venture capital dropped under the new portfolio construction guidelines [see chart].

New Mexico’s new portfolio mix 
Strategy Current New Actual (as of Q2, 2017)
Buyout 50-70 pct 60-80 pct 64 pct
Growth Equity 10-20 pct 10-25 pct 15 pct
Special Situations 10-25 pct 5-15 pct 20 pct
Venture Capital 0-10 pct 0-5 pct 1 pct
North America 60-70 pct 60-75 pct 66 pct
Europe 15-25 pct 10-25 pct 16 pct
Asia and other emerging markets 10-20 pct 10-25 pct 8 pct
Other 0-10 pct 10 pct
Source: New Mexico State Investment Council

“It goes back to our question of access and bite size,” Wollmann said, adding that the state’s public investment disclosures play a role. “[With] venture, we’re not going to get into the top-flight funds because of the public nature of our endowment. It makes it less interesting for certain venture managers.”

New Mexico’s private equity program had delivered a 10-year annualized return of 7.3 percent, according to its Jan. 9 meeting materials.

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