New Mexico’s private equity portfolio generates positive cashflow in Q1

New Mexico State Investment Council reported positive cashflow from its private equity portfolio for the first quarter of 2023, bucking a trend plaguing many other LPs.

A slow exit market has reduced distribution flows for many LPs, which together with overallocation to the asset class has exacerbated a tough private equity fundraising ecosystem.

New Mexico’s results, along with recent data related to private companies, suggest there may be a light at the end of the tunnel for LPs awaiting cash returns and liquidity.

The system’s distributions outpaced contributions by $34 million in the first quarter, according to a presentation focused on its private equity portfolio held at its August 29 board meeting. Buyouts watched a broadcast of the meeting.

“This is great to see for your portfolio,” said Amy Ridge, a partner at New Mexico’s consultant Mercer. 

Most LPs currently receive an average of 60 cents in distributions for every $1 in committed capital, according to Chris Cassidy, New Mexico’s director of private equity. 

“It gives us an opportunity to look at really interesting investments,” Cassidy said about the positive cashflow. According to the presentation, New Mexico has approved $775 million in commitments to nine mangers so far this year. 

Ridge said distributions were buoyed by two exits, each worth $20 million. 

While exits still remain slow, a recent report from investment banking advisor Lincoln International suggests a turnaround may be ahead, with more LPs eventually able to mirror New Mexico’s results.

Over 80 percent of private market industry respondents said they expect transaction activity to return to form by the first half of 2024, according to a recent survey conducted by Lincoln.

Private companies also showed strength despite an economy facing many headwinds, according to Lincoln’s Private Market Index report for the second quarter of 2023.  

More than 60 percent of private companies included in the index reported positive earnings growth in the second quarter. Earnings also exceeded what private companies had budgeted for by 2.5 percent.

These strong marks came during a rising interest rate environment, customers still feeling the pinch of inflation and a slowdown in demand, according to Lincoln.

Lincoln International’s private market index analyzes the changes in earnings, market multiples and other date for approximately 1,400 private companies.