Once caught in the middle of a national pay-to-play scandal, the $16 billion New Mexico State Investment Council shifted $7 billion to new managers while terminating all of its public markets managers and all but one of its consultants.
And executives at the Santa Fe-based council still aren't done. In the works are:
- plans to commit $1.5 billion to real-return asset classes for the first time and an additional $500 million per year in private equity;
- a switch to an asset allocation that stresses income-producing assets over more volatile equity or equity-like investments. The new asset mix is designed to perform in good markets and economic meltdowns;
- a proprietary risk management system with the help of Mariner Investment Group LLC, one of its three hedge funds-of-funds managers;
- a reorganization of the council from one controlled by governor's appointees to a body that includes appointees from the state Legislature and has fixed-term appointments of council members;
- a bill to be proposed in the legislative session in January to take control of council personnel including pay and budget; and
- a global analyst network of 70 to 120 investment professionals in money management shops across asset classes that is expected to dramatically increase the information flow into the council's investment office.
Already, the overall investment portfolio has been through an ambitious reconstruction that resulted in the council's largest pool of assets, the $11.2 billion Land Grant Permanent Fund, returning 18.1% for the year ended Sept. 30. For the entire portfolio, assets were up 17% for the year. This ranks the council second for returns in the Wilshire Trust Universe Comparison Service among public funds with $1 billion or more in assets.
New Mexico Gov. Susana Martinez, council chairwoman, said in a written statement for Pensions & Investments that she is “encouraged by the ambitious reforms the council has implemented in such a short time.”
“After years of questionable investments and poor investment performance, today's council is focusing on transparency, good governance and what is best for the people of New Mexico,” Ms. Martinez said. “Our strong investment returns suggest that we are now back on the right track.”
Three years ago, the program was a mess. Returns were poor — -7.43% for the year ended Sept. 30, 2009 — and the council was rocked by a pay-to-play scandal. Among those named in a lawsuit filed by the state attorney general was Gary Bland, former state investment officer, who allegedly made alternative investments pushed on him by politically connected individuals, according to the lawsuit, which is ongoing.
“The portfolio needed major surgery and we knew that,” said Steven K. Moise, state investment officer since 2010, after the scandal came to light.