New Mexico tables investment plan after council member knocks PE

  • Council tables FY 2016 investment plan
  • Plan would increase PE commitments to as much as $650 mln
  • Council still commits to EQT, Coller Capital funds

The investment plan set a private equity commitment pace of between $550 million and $650 million for the fiscal year ending June 30, 2016. The new pace would represent a modest increase over the $500 million to $600 million New Mexico’s $20 billion sovereign wealth fund has allocated to the asset class in each of the previous two years, according to investment council materials.

In recent months, the council has grown increasingly skeptical of the private equity industry and the fees managers charge their portfolio companies, a source with knowledge of the council told Buyouts. While questions about fees were not directly addressed at the June 23 meeting, they remain top of mind for many council members, the source said.

Council member Tom Clifford, who is also secretary of the New Mexico Department of Finance and Administration, said he is concerned private equity firms do not face the same level of regulatory scrutiny as publicly traded securities, thereby making those investments more dangerous and less transparent.

“I’m really concerned about, as I’ve said before, moving away from publicly traded, regulated markets, into unregulated – or much less regulated, much less transparent, much less liquid – classes of assets [just] because everybody’s doing it,” Clifford said during the meeting.

He added: “I don’t think [private equity is] transparent. It’s vague. It’s unclear what we’re buying. It’s unclear where it is. I just have a lot of concerns with this whole approach.”

Deputy State Investment Officer Vince Smith rebutted those claims at the meeting, noting private equity firms often provide more information about their investments than public companies.

“Call up General Electric and ask them for details about the last company they took private, and they won’t say anything to you. But call up one of our private equity managers, and ask them details about the last investment they made, and you’ll get that,” Smith said.

Secondary seller

The proposed plan to increase its commitment pace runs parallel with New Mexico’s desire to reduce the number general partnership relationships within its portfolio. The State Investment Council has been an active seller on the secondary market, having sold stakes in 3i, Apax Partners, Cinven and Clayton Dubilier & Rice funds last year.

In September, New Mexico identified approximately 20 fund positions with a total net asset value of around $60 million as potential candidates for another secondary sale, Dow Jones reported.

Despite the concerns raised by Clifford, the council committed up to $150 million to private equity at its June 23 meeting. It allocated up to $75 million to EQT VII, the latest offering from EQT Holdings. This is the first time New Mexico has invested with EQT.

The Swedish private equity firm is targeting 5.25 billion euros ($5.87 billion) with a 6.75 billion euros hard cap for investments in upper middle-market companies based in Northern and Central Europe. EQT VII is said to be highly oversubscribed, and many LPs who committed to the first close saw their allocations cut back to accommodate the level of demand, Buyouts has reported.

New Mexico also committed up to $75 million to Coller Capital’s latest secondary fund, which is targeting $5.5 billion with a $6 billion hard cap. That fund will acquire portfolios of private equity fund stakes from banks, insurance companies, hedge funds and general partners, according to LP memos.

New Mexico previously allocated $105 million across a pair of older Coller secondaries funds.

The New Mexico State Investment Council valued its private equity portfolio at $1.37 billion as of December 31, according to state documents.