New Mexico Educational Retirement Board, Santa Fe, committed a total of $190 million to three private equity funds, said Bob Jacksha, CIO of the $13.3 billion pension fund, in an email.
The board committed $100 million to Banner Ridge Secondary Fund III, a secondary private equity fund and $40 million to Banner Ridge DSCO Fund I, a secondary distressed debt fund; both funds are managed by new money management firm Banner Ridge Partners. The firm was founded by Anthony Cusano, who had worked as a portfolio manager of Siguler Guff & Co.'s secondary opportunity fund. New Mexico ERB invested with the team when they were at Siguler Guff.
The board also committed $50 million to ZMC III, a private equity fund managed by ZMC Advisors that will seek investments in Northern American and European transitional growth and special-situations companies in the media and communication sectors. The pension fund the firm's prior fund, ZMC II.
The board at its Aug. 22 meeting also selected a new asset allocation in which it is increasing its private equity, real estate, private real assets and other diversifying assets target allocations and decreasing domestic equity, opportunistic credit and global asset allocation, Mr. Jacksha said.
No public searches or terminations will result from the new asset allocation, Mr. Jacksha said.
The board cut its domestic large-cap equity target allocation by 2 percentage points to 14% in favor of boosting its private equity target allocation by 2 percentage points to 15%. The pension fund also reduced by 2 percentage points each opportunistic credit and GAA to 16% and 2%, respectively, while bumping up private real assets by 1 percentage point to 9%, non-core real estate by 1 percentage point to 5%, and other diversifying assets by 2 percentage points to 7%.
The board retained its remaining target allocations: 9% emerging markets international equity, 6% core bonds, 5% international equity, 3% smidcap equity, 3% risk parity, 2% emerging markets debt, 2% real estate investment trusts, 1% core real estate, 1% cash, and targets of zero for liquid real assets and absolute return.
The pension plan's other diversifying asset category is a relatively new asset class that seeks to invest in assets or strategies that will diversify the portfolio, particularly equity risk, and have an expected return that will help the pension fund attain its 7.25% assumed rate of return. Over the past 18 months, pension fund officials have invested in reinsurance, energy project finance, a credit strategy and a drug royalty strategy. Officials expect to add aircraft leasing in the next few months, Mr. Jacksha explained in a separate email.
"To date (about 1.5 years), this 'other' category has returned 11.5% and has a correlation of -0.14 to the rest of the portfolio and a negative correlation to public equities," he said.
The board also changed its investment policy to allow the pension fund to use leverage of up to 20% as an overlay to the portfolio. The board decided to add leverage due to the large amount of illiquid assets in its portfolio, which has made it harder for pension fund officials to maintain allocations to public securities, Mr. Jacksha said. Pension fund officials plan to use derivatives to increase or decrease exposures as they deem appropriate. Officials expect to hire an outside manager through an invitation-only search and are already in discussions with candidates.
