Message From the State Investment Officer
“To protect and grow the state’s permanent endowment funds for current and future generations, through prudent, professional investment management.”
This is the mission of the New Mexico State Investment Council (SIC), and part of an overall Mission Vision Values statement adopted by SIC staff and endorsed by the Council.
New Mexico is proud of the fact that we have one of the largest sovereign wealth funds (permanent endowments) in the United States ($31 billion) and one of the larger global funds. Thanks to the forward planning of our legislature in 1958, the SIC annually contributes, on average, 15 percent of our state’s operating budget – saving each New Mexico family more than $1,200 in taxes each year. With consistent investment performance and our annual receipts from natural resource revenues and land grant-related revenues, we hope to be able to consistently maintain or increase our annual contributions to the state budget, to education, and to the beneficiaries of the funds we manage.
By investing prudently over time, we will enable future generations to enjoy the same or a greater level of benefits compared to what we currently provide to our citizens. Ongoing efforts to restructure Permanent Fund investments have enabled the Council to grow its assets by more than $15 billion since April, 2010.
The Council has adopted new investment strategies that better diversify our assets, and which will help to reduce overall volatility of the portfolio. Our current 40 percent stock position is about 20 percent less than it was 10-years ago. We have increased allocations to income-producing “real assets” and private equity. Through our New Mexico Private Equity Program, the SIC indirectly co-invests in technology, health care, software, aviation and energy companies, among others. The Council used a combination of state, federal, and private dollars to create a $20 million New Mexico Catalyst Fund, which invests in New Mexico-focused entrepreneurial funds. Those funds bring their own matching funds to the table and with a combined $40 million or more to invest, most will then target investments in dozens of startup companies statewide. We believe the Catalyst Fund addresses a need for capital among early-stage or emerging companies and takes advantage of the great things going on in the entrepreneurial sector in our state.
In March 2020, the Council was quick to take action to support New Mexico businesses significantly impacted by the COVID-19 pandemic, authorizing a $100-million low-cost loan program for qualified borrowers. These loans, in tandem with small business loans from the Severance Tax Permanent Fund facilitated by the Small Business Investment Corporation (SBIC), loans authorized by the Small Business Recovery Act and federal loans and grants, are helping our state’s economic recovery. The legislature designated $450M from the Severance Tax Permanent Fund for use by the NM Finance Authority-administered NM Small Business Recovery Loan Fund for small business loans & to assist local governments in connection with the COVID crisis. The legislature is expected to fine-tune this stimulus program in 2021.
The following is a summary of some of the most impactful highlights from 2020:
Staff has worked remotely since mid-March. IT staff facilitated a seamless transition from staff’s in-house operating model to our remote working model and has consistently monitored and fulfilled related needs.
During 2020, assets under management (AUM) increased by ~$2.4B. The Land Grant and Severance Tax funds also distributed ~$1.01B to the state and our beneficiaries in FY 20, and $1.07B in FY21. FY 22 distributions, which will be determined by December 31, 2020 valuations, are projected to increase to ~$1.15B under current constitutionally-guided distribution guidelines. This additional distribution of $80 million is a record increase year-over-year.
The SIC invested or committed ~$4.2B in Council-endorsed funds which included (1) transitioning ~$1.9B from active to passive domestic public equity strategies as part of a $2.3B total transition, (2) planning to invest an additional ~$450M in international public equity active risk strategies (transition delayed until 2021 due to market volatility), (3) re-allocating the Core Fixed Income portfolio with ~$500M moving to Non-Core Fixed Income, (4) putting ~$1B into real estate & real return, (5) directing ~$450M to private equity, and (6) committing ~$40M to New Mexico private equity. The NM program was legislatively-expanded to permit investing up to 11% of the Severance Tax Permanent Fund, and the Council adopted a new NM Private Equity Policy, including guidelines for funding emerging managers.
For the most recent quarterly reporting period ending 9/30/2020 the Land Grant Permanent Fund, the SIC’s flagship fund, earned, net of fees: 1 yr 4.26%; 3 yrs 5.30%; 5 yrs 7.34%; 7 yrs 6.58%; and 10 yrs 7.65%. The one-year return fell materially below the market benchmark return for this period-end, and pulled the subsequent timeframe returns down to in-line-to-slightly-below the market benchmark. The one-year return was also well below peer returns in this period, though the subsequent timeframes held up better and remained in-line to well above peers’. While performance versus market benchmarks and versus peer returns will fluctuate from period-end to period-end, over time we seek to outperform market benchmarks as a matter of investment policy, and we work to position our investments to perform in-line with or better than peers.
The Council completed periodic investment-related studies including: our FY21 Annual Investment Plan, Fixed Income Structure Study, Tax Stabilization Reserve Asset Allocation, updated General Investment Policy, Public Equity Domestic Equity Structure Study, Public Equity International Equity Structure Study, and Early Childhood Education Fund Asset Allocation.
Our accounting staff successfully completed the annual external audit, again resulting in an unmodified opinion, as we have consistently achieved over the last 10 years. That staff also led our effort to recover over $3M in tax reclaims.
Staff began or completed implementation of Blackrock’s Aladdin risk system, the Colmore & Parametric systems.
As directed by House Memorial 9, staff convened a multi-agency working group to produce a Council-endorsed Renewable Energy Investment Strategic Plan. The study provides the Council additional flexibility in seeking-out new institutional investment opportunities in New Mexico in the growing renewable energy field.
Staff prepared and delivered presentations to legislative committees including the Investments & Pensions Oversight Committee, the House Appropriations and Finance Committee, and the Legislative Finance Committee. We continued efforts to educate stakeholders regarding the importance and operation of the permanent funds.
Our legal department performed legal-related diligence, negotiated contracts which facilitated implementation of new fund investments and oversaw other legal and compliance-related matters.
We managed ~$1.46B for 23 NM government-related clients, providing them with substantially lower costs than they would otherwise incur. One new client, The NM Highlands University Foundation, entrusted us with their investments.
The legislature allocated ~$1.6B to three relatively new funds managed by the SIC – the Tax Stabilization Reserve, Early Childhood Education, & Rural Libraries funds. These funds had balances of $1.32B, $303M, & $3M, respectively, as of November 30, 2020.
Nicholas Telles was appointed to the Council in January and was confirmed by the Senate in February. Michael Messina was appointed in June 2019 and was confirmed by the Senate in February. Linda Eitzen resigned from the Council in November after serving for over eight years. Commissioner of Public Lands Stephanie Garcia Richard was selected to serve as Council Vice-Chair in January.
I am honored to have the opportunity to serve the SIC and our citizens in coordinating the operations of the State Investment Office, and the stewardship of our funds.
Our Council and each member of our staff is committed to fulfilling our fiduciary responsibilities in a professional, ethical and respectable manner. We strive to merit the trust of our stakeholders. Thank you for your interest in and support of our efforts.