New Mexico is the latest state to allow its state pension funds to invest in alternatives, leaving fund officials to determine how they will be taking advantage of the opportunity.
In April, New Mexico Gov. Bill Richardson signed the legislation, allowing the funds to invest plan assets in alternatives, including real estate, private equity and hedge funds.
That signing came a month after Mississippi Gov. Haley Barbour signed legislation allowing the state pension plan to invest up to 10% of plan assets in alternatives, including private equity and hedge funds. Mississippi already had the ability to invest up to 5% of plan assets in real estate.)
Officials in both states say the first step in the process is education. Officials at the Public Employees' Retirement Association of New Mexico, Santa Fe, then expect to ask consultant Callan Associates Inc. to update the system's asset allocation to include private equity, real estate, hedge funds, structured debt and other derivatives, said Robert E. Gish, director of investments for the $10.1 billion system.
Mr. Gish said he anticipates that by July the board will give existing managers broader authority to include derivatives for risk control. However, requests for proposals won't be issued until after the system completes a search for a new general consultant; San Francisco-based Callan's contract expires in June. Funding for the new allocations is expected to come from the system's fixed-income portfolio, which comprises 35% of the entire portfolio.
For now, association officials have no plans to hire specialized consultants. But Mr. Gish added: "If we feel we need a specialist, we have the freedom to do that."
Officials at the $6.7 billion New Mexico Educational Retirement Board, Santa Fe, will also start off by educating the fund's board to "get them up to speed," said Frank Foy, chief investment officer. The board's general consultant Wilshire Associates, Santa Monica, Calif., will assist. However, board may decide to bring in specialized consultants to help with the board's education and it may send board members to conferences, Mr. Foy said.