Fund Manager: New Mexico State Investment Council
Assets Managed: $16 Billion (Sept. 30, 2012)
Private Equity: $1.1 billion (Sept. 30, 2012)
Actual PE Allocation: 9.5% (Sept. 30, 2012)
Target PE Allocation: 10%
State Investment Officer: Steven Moise
New Mexico has $1.1 billion in invested private equity capital as of September 2012. That is roughly 9.5 percent of the fund’s overall assets, compared to the system’s 10 percent long-term target. Over the last decade, the state’s private equity portfolio has returned 6.6 percent annually on average, well below its 11.8 percent private equity benchmark.
Under the state’s recent restructuring, the council is boosting annual contributions to private equity funds by $500 million per year, and also is making several private equity investments within its real asset portfolio, including its latest pledge to EnCap.
Houston-based EnCap, which was founded in 1988 and invests mainly in oil and gas exploration and production, has so far produced spectacular returns for investors. EnCap’s previous fund, the 2011 vintage Fund VIII, which raised $3.6 billion, has so far delivered a net IRR of 53 percent, according to June 2012 data from the Los Angeles County Employees’ Retirement System. No return multiples were available.
In addition to its pledge from New Mexico, Fund IX, which has a target of $4.5 billion, has so far secured commitments of $30 million from the Maine Public Employees’ Retirement System and $20 million from the Rhode Island Investment Commission.
Stockholm-based Nordic Capital, which also received a $75 million commitment from the council, mainly buys companies in Scandinavian and German-speaking countries. The fund has reportedly lowered its target for Fund VIII to about $4.5 billion from its original goal of $5.5 billion. The firm, which was founded in 1989, raised about $5 billion for its last fund, the 2008 vintage Fund VII.
Apart from New Mexico’s commitment, Nordic’s Fund VIII has so far received pledges of $400 million from the Washington State Investment Board, $175 million from the Virginia Retirement System, $150 million from the Massachusetts Pension Reserves Investment Management Board and $100 million from the Los Angeles County pension system.
Washington State, in particular, has been an aggressive investor in Nordic funds, committing more than $1.2 billion across six vehicles. The firm’s previous vehicle, Fund VII, has not performed well, according to June 2012 date from Washington State, delivering a net IRR of negative 3 percent together with a net return multiple of 0.9x. Previous funds, such as the 1998 vintage Fund III and the 2000 vintage Fund IV performed far better, delivering net IRRs of 31 percent and 33 percent respectively. Net return multiples were 3.6x and 2.8x, respectively.
Apart from its focus in Scandinavian and Germanic buyouts, Nordic Capital also favors health care companies. One of its biggest investments was its purchase and subsequent sale of Nycomed, a mid-sized European pharmaceutical maker. Nycomed was sold in 2011 to Takeda Pharmaceuticals, a Japanese drug company, for $13.7 billion, an investment that represented a 1.4x return. Nordic Capital was the main investor in the consortium that bought Nycomed. Others included Avista Capital, DLJ Merchant Banking and Coller International Partners.