Additions to New Mexico State Investment Council‘s existing agriculture and timber investments are more likely to come in the form of secondaries or co-investments than additional fund commitments, according to meeting materials.
The $24.3 billion sovereign wealth fund’s agriculture and forestry holdings are housed within a real-return portfolio designed to provide inflation protection and extra return through allocations to energy, infrastructure and other tangible assets.
The institution is considering a set of changes to the policy that governs that portfolio recommended by its real-return portfolio advisor the Townsend Group.
Agri and timberland fund secondaries accounted for $266 million of last year’s secondaries deal volume, down around 20 percent year-on-year, according to intermediary Setter Capital’s latest volume report.
Townsend advised a 5 percent adjustment to the balance between the “real” and “financial” assets held within the real-return portfolio, according to meeting materials posted on NMSIC’s website. The firm recommended that NMSIC lower the interim target for its real-return financial assets to 20 percent from 25 percent, and that the real asset portion’s target allocation be raised from 75 to 80 percent.
“The investible opportunity sets of both energy and infrastructure dwarf the investible opportunity sets for agriculture and timberland,” Townsend said. “Given limited new capital to invest in these sectors, focus more on evaluating unique situations (co-investments, secondary sales, etc.) as opportunities are presented and less on fund investment opportunities.”
The materials show that as at the end of September, NMSIC’s $375 million in agricuture investments had a net asset value of $147.6 million, noting that the J-Curve effect had adversely impacted returns on the “relatively young” portfolio.
Townsend also highlighted the J-Curve effect in a note coming with its January 2017 recommendation that NMSIC make a $50 million commitment to Agriculture Capital’s Fund II, which surpassed an initial target of $400 million before closing on $548 million in October.
NMSIC typically makes fund commitments of between $50 million and $100 million. In addition to ACFII, these have included a $50 million investment in NGP Agribusiness Follow-on Fund in 2014 as well as commitments of $75 million to Brookfield Brazil Agriculture Fund II and $200 million to TIAA-CREF Global Agriculture II in 2015.