New Mexico to boost commitment pace amid flood of distributions

  • New Mexico to commit between $600 mln and $650 mln in 2015
  • Pension is prepping a secondary sale of older funds next year
  • Wave of distributions “swamped” capital calls, pushed down allocation to PE

A wave of distributions from investments in private equity funds “swamped” capital calls for new deals, which prompted the increase, according to meeting materials. Strong distributions and rising public equity portfolio valuations caused the $14.4 billion land grand fund’s private equity allocation to fall well below its 12 percent target.

New Mexico had a 7.6 percent allocation to private equity as of Oct. 31, valuing the portfolio at roughly $1.1 billion. The investment council, which also manages investments for the state’s $4.5 billion severance tax fund and several smaller entities, increased the land grant fund’s target private equity allocation from 10 percent in August

“We’ve had a lot of inflows, so it’s been tougher to get money back out there,” spokesman Charles Wollman said.

Investment staff and advisor LP Capital Advisors established the new pacing model to account for changing market conditions, he said. The new model has New Mexico hitting its target private equity allocation within five years, as opposed to the previously assumed three year window.

New Mexico will likely concentrate new private equity commitments with existing fund managers as it reduces the number of general partner relationships in its portfolio, though it also anticipates some expansion into European and overseas funds, according to meeting materials.

While New Mexico ratchets up its commitment pacing, it also plans to unload roughly $60 million in older fund stakes on the secondary market as early as the first quarter of 2015, Wollman said in a follow-up email. The sale could involve as many as 15 of the investment council’s general partners and 20 funds. Each of those fund commitments are at least 10 years old.

“We are still working on valuation metrics and possible sale methodology, but nothing will happen until 1Q 2015 at the earliest,” he said.

New Mexico is not a stranger to the secondary market, having executed two private equity sales in 2014. In August, the investment council sold stakes in 3i Eurofund V, Apax Europe VI and Apax Europe VII. New Mexico sold holdings in a pair of Cinven funds and two Clayton Dubilier & Rice funds in April.