The New Mexico State Investment Council, manager of the state’s $14.4 billion sovereign wealth fund, released a new long-range strategy for its private equity portfolio that envisions committing around $400 million per year through 2016, according to a copy of the strategy released at the Council’s Jan. 24 meeting. The strategy was prepared by the Council’s private equity consultant, LP Capital Advisors.
New Mexico’s private equity program has $1.7 billion in private equity capital as of Nov. 30th, about 12 percent of the portfolio. That is slightly above the state’s private equity target allocation of 10 percent.
The state’s long-range strategy, the report says, is to concentrate new commitments on a smaller number of managers, limiting the number of relationships to fewer than 50 and keeping the number of funds to fewer than 100.
Geographically, the plan calls for diversifying out of North American private equity, which is currently 80 percent of the private equity portfolio, and increasing allocations to Asia and emerging markets, which represent a small fraction (3 percent) of the program’s 10 to 20 percent target range. Finally, the report said the state plans to cut down the number of European private equity managers to just two or three. Overall, European private equity is 15 percent of the PE portfolio, the low end of its 15 – 25 percent range.
Separately, the SIC committed $75 million to a new buyouts and growth capital fund from Los Angeles-based Ares Management. The Ares Corporate Opportunities Fund IV LP, aims to invest mainly in under-capitalized middle market companies in North America and has a $4 billion target.
This is the second Ares fund for New Mexico. The state invested $50 million in Ares’ previous fund, Ares Corporate Opportunities Fund III LP, a vintage 2008 fund that raised $3.5 billion and which has so far produced net IRRs of 28 percent and a 1.5x return multiple. Ares manages $6 billion in private equity capital, and $46 billion in capital overall.