New Mexico Pensions Plan PE Investing

New Mexico may soon chart its own course through the terrain of private equity investing. Both houses of the state’s legislature voted to allow its pensions to alter their asset allocation to include private equity investing.

Three state pension funds – the $6.7 billion New Mexico Educational Retirement Board (ERB), the $10 billion Public Employees Retirement Association (PERA) and $12 billion State Investment Council (SIC) – will scrap more restrictive investment rules and instead invest in accordance with the Uniform Prudent Investor Act (UPIA), a law that regulates fund managers. This would allow the pensions to invest in areas of alternative assets previously prohibited, such as private equity.

After the legislators passed the bill by a wide margin, it was sent to Gov. Bill Richardson, who is expected to sign it. The bill would take effect July 1.

“This will give us some flexibility to roll with the tides of the market,” says Charles Wollmann, a spokesman with the SIC. “There are some areas where we certainly would have invested more strongly in the past few years if we had the opportunity.”

New Mexico hired New England Pension Consultants as its chief consultant on alternative assets, and the firm compared a New Mexico land grant fund to a California fund that invests in alternative assets. The study showed that the fund with alternative assets had a higher rate of return than New Mexico’s more restricted fund. New England Pension Consultants is also conducting a hedge fund search for New Mexico.

SIC, which has had a limited ability to invest in alternative assets since 1989, uses Aldus Capital Partners as its private equity advisor.

New Mexico is the latest among a handful of few states that are just now allowing pension fund diversification into private equity. Late last month, Mississippi’s governor signed into law a bill that allows the $16 billion Public Employees Retirement System of Mississippi to invest in alternative assets. The New Jersey State Investment Council approved a plan to invest 13% of its $66 billion in assets into alternative investments. The plan would allocate 5%, or about $3.3 billion, of its assets to go to private equity (see PE Week, 11/22/04).

New Mexico has made a concerted effort in recent years to attract private equity, having set up the SIC, which has campaigned to invest in venture funds with a mandate of backing startups n New Mexico. The program has invested $148 million in venture funds, including most of the founding firms of the New Mexico Venture Capital Association. The firms have raised $953 million in the state through the program, which is managed by Cincinnati-based Fort Washington Capital Partners.

Founding members of the NMVCA include the Altira Group, Blue Sage Capital, Flywheel Ventures, Fort Washington Investment Advisors, ITU Ventures, Mesa Ventures, Red River Ventures, Vspring Capital and Wasatch Venture Fund.