New Mexico Re-Ups With Mezz Manager

In keeping with its burgeoning interest in debt investing, the New Mexico State Investment Council has pledged $25 million to Falcon Investment Advisors’s Falcon Strategic Partners III LP, said Charles Wollmann, public information officer. The vote on the pledge was held on Nov. 18.

Altogether Falcon Investment is trying to accumulate $800 million for mezzanine investments in the lower middle market. In 2005, New Mexico committed $20 million to the predecessor fund, Falcon Mezzanine Partners II, for which the firm collected $440 million fund. The limited partner’s other recent mezzanine pledges include $30 million to The Carlyle Group’s Mezzanine II Fund, said Wollmann.

Falcon Investment’s two managing partners, Sandeep Alva and William Kennedy, worked previously in the mezzanine group at John Hancock Life Insurance. During Alva’s tenure there, he was responsible for investing $891 million in 52 transactions, generating 30 realizations for a gross IRR of 46.5 percent, according to New Mexico meeting minutes.

Falcon Investment’s usual approach to mezzanine investing is to preserve capital, take a board seat, and form a strong relationship with the management team. The firm, which was founded in 2000 and has offices in both Boston and New York City, provides $10 million to $75 million of capital for each deal and invests in companies with revenues of $50 million to $300 million, EBITDA of $5 million to $40 million and enterprise values of $30 million to $300 million.

Other Falcon Investment backers include the Teachers’ Retirement System of Louisiana, which pledged $75 million to Falcon Strategic Partners III; New York State Common Retirement Fund; and City of Philadelphia Board of Pensions and Retirement.

New Mexico, which has an investment portfolio of $16 billion, has an actual private equity asset allocation of 9.6 percent, above a target allocation for the asset class of 8 percent, but within a range of 6 percent to 12 percent. Aldus Equity is the LP’s private equity consultant.