New Mexico SIC’s PE commitments fall short of pacing for 2018

New Mexico State Investment Council’s private equity portfolio increased by almost $400 million but commitments fell short of the pacing target in 2018.

Contributions exceeded distributions by almost $100 million and the portfolio made gains of $300 million, said Richard Pugmire, managing director at Pavilion Alternatives Group, New Mexico SIC’s investment adviser, at the Nov. 27 board meeting.

“Funds have been really strong in the portfolio,” Pugmire said.

Still, the sovereign fund’s PE commitments were 48 percent short of its pacing target of $550 million for 2018.

The sovereign fund committed $285 million to four funds from Vista Equity Partners, Bridgepoint, JMI Equity and Hellman & Friedman to date in 2018.

Commitment pacing for 2018 was slower for several reasons, Pugmire said.

New Mexico SIC expected 2019 to be a strong year. Managers with potential re-ups and new relationships the sovereign fund was targeting would come to market with new funds, Pugmire said.

The sovereign fund didn’t want to use all the capital, so there’d be additional capital to commit next year, he said.

Also, several funds that New Mexico SIC committed to in 2017 ended up drawing their first capital in 2018, Pugmire said.

“You actually have quite an exposure to 2018 vintage year funds even though you didn’t make the approval in the target range,” Pugmire said.

Importantly, the sovereign fund’s private equity portfolio still had $1.4 billion in unfunded commitments, Pugmire said.

“We are cognizant that unfunded commitments can make allocations swing pretty widely in case of a [market] correction,” David Lee, director of private equity at the sovereign fund, said.

Nearly all PE commitments in the past two years have been re-ups to funds from Landmark Partners, Nordic Capital, TDR Capital, TPG, JMI Equity, Bridgepoint, Vista Equity Partners. Hellman & Friedman and New Mountain Capital were new relationships.

New Mexico SIC manages almost $23.7 billion in assets, comprising the land grant and severance tax permanent funds.

The PE portfolio produced an internal rate of return of 11.5 percent as of June 30, 2018, up from 11.3 percent for the year-earlier period.

New Mexico SIC’s PE portfolio consists of 95 buyouts, 57 venture capital, 29 special situations and 22 growth funds.

Buyouts accounted for more than 60 percent of the PE portfolio and produced the highest IRR of 12.7 percent.

That was followed by growth, venture capital and special situations, which produced IRRs of 10.8 percent, 10.3 percent and 8.2 percent, respectively, as of June 30, 2018.

New Mexico SIC’s PE portfolio returned 14.8 percent over one year, 10.64 percent over three years, 10.81 percent over 5 years and 8.2 percent over 10 years as of Sept 30, 2018.

Action Item: Read more on New Mexico’s PE investments here https://bit.ly/254tPRn