The New Mexico Educational Retirement Board has implemented a new investment strategy to gain exposure to “compelling” GPs in a risk-mitigated matter and at a discount, according to deputy chief investment officer Steve Neel.
The strategy means that when New Mexico commits to a private equity fund, it will also be allowed to make a second commitment, valued at 25 percent of the original commitment, by purchasing a stake in the fund from another limited partner. The secondary purchase will normally be executed at a discount to the fund stake’s NAV. New Mexico will be allowed to purchase the stake any time during the fund’s life.
“We’re acting on what is minimal information when we make a primary commitment,” Neel said. “As the fund matures we’re getting more information and if the information is flowing in the right direction it makes absolute sense to get more exposure.”
The strategy has been well-received by GPs because New Mexico will serve as a solution provider for them.
“GPs like to control their LP base and an existing relationship is more palatable than a secondary fund or fund of funds.”
Neel hasn’t heard of other public pensions implementing the strategy but he’s sure more LPs will look for this kind of flexibility. Right now the strategy will only apply to New Mexico’s private equity portfolio, but it could apply to other asset classes too.
New Mexico has historically been active in the secondaries market by committing to funds such as W Capital Partners’ $750 million Fund III and Industry Ventures’ $404 million Fund VI , according to PEI’s Research and Analytics division.
New Mexico has $11 billion of assets under management and an 11 percent target allocation to private equity.