New Mexico State Investment Council, Santa Fe, adopted new target asset allocations for two of its endowments — its Tobacco Settlement Permanent Fund and Water Trust Fund, said Charles Wollmann, spokesman for the $25.1 billion endowment, in an email.
The asset allocation changes are not expected to result in the council hiring additional managers because the increases will be spread among the council's existing managers, Mr. Wollmann said.
The tobacco fund's new target allocation reduces broad U.S. equity to 10% from 33%, broad international equity to 10% from 33%, and core fixed income to 10% from 24%. The new tobacco fund allocation increases non-core fixed income to 25% from 10%, real return to 25% from zero, and real estate to 20% from zero.
The water fund's new target allocation decreases broad U.S. equity to 10% from 20%, broad international equity to 10% from 15%, U.S. aggregate fixed income to 8% from 15% and non-core fixed income to 8% from 15%. The water fund's allocation increases real return to 20% from 5%, real estate to 22% from 15%, and private equity to 22% from 15%.
Separately, the council voted to settle its pay-to-play lawsuits against Gary Bland, former New Mexico state investment officer; Guy Riordan; and Marc and Anthony Correra for a total of about $19 million. "Together these settlements resolve all the remaining claims in the SIC vs. Bland action," said Bruce Brown, deputy general counsel and compliance officer, in a memo for the council's May 28 meeting.
"We have won," said Mr. Brown, who was also a commissioned New Mexico assistant attorney general for the SIC vs. Bland lawsuit.
He said that a costly trial would not be expected to provide a better result because recovery after a victory at trial would be limited to amount the council would be able to collect from the defendants.
"Based on both confidential settlement-communication financial … as well as affirmative representations by defendants … we believe these settlements will result in a materially higher recovery for the SIC than we would be able to collect after a trial regardless of the judgment's size."
The council has already recovered a total of about $51.5 million from 20 other defendants.
The pay-to-play scheme at the heart of the litigation first came to light in March 2009 through an investigation by the Securities and Exchange Commission and New York state attorney general's office into a similar scheme in New York. One of the participants identified by New York investigators was Aldus Equity Partners, which was also the council's private equity consultant.
Marc Correra, a third-party marketer was paid more than $18 million by the council's money managers "not because he had any particular ability to market their funds, but because of the influence he and his father, Anthony Correra, had with Aldus and State Investment Officer Gary Bland," the memo said.
Aldus and Mr. Bland recommended the managers without disclosing their conflict of interests, resulting in a breach of their duty of loyalty, the memo said.
"There is no evidence, however, that Bland or Aldus received a bribe, kickback or other pay-to-play payments from investment managers," the memo said.
Guy Riordan was a placement agent who represented a private equity adviser and a hedge fund manager that were selected by the council, the memo said. Mr. Riordan was a former managing director of Wachovia Securities of New Mexico and former New Mexico State Game Commission chairman. In 2009, the SEC fined Mr. Riordan $1.5 million and banned him from the securities industry for life for making secret cash payments to former New Mexico state Treasurer Michael Montoya in exchange for winning state business.
