The New Mexico State Investment Council (SIC) has begun a review of its transparency and disclosure policy, following several complaints from private equity managers about it.
The transparency and disclosure policy consists of clauses such as bans on placement agents, acceptance of gifts and campaign contributions by managers to those in elected positions at SIC, as well as disclosure requirements and penalties on breach of contract.
Linda Eitzen, chair of the SIC investment committee, told the board at the 25 April meeting that the investment committee staff has started reviewing this policy after hearing from multiple general partners that certain elements of it are too harsh and not aligned with market standards, according to a SIC spokesman. The current policy was originally adopted in 2009 and amended in 2010, 2012 and 2015.
“The policy was originally created based on the issues we had in 2008 and 2009 with pay-to-play,” the spokesman told PEI. “Staff will be reviewing the policy in coming weeks or months to make sure it’s still appropriate in today’s markets and reflects the improvements we have made at SIC in the past couple of years.”
Although he did not disclose names of the GPs that have complained, he said concerns were raised specifically regarding the policy’s liquidated damages element. It states that a breach of contract would result in the immediate termination of SIC’s investment with no obligation to keep funding the entity or pay management and performance fees.
The entity in breach of contract would also have to pay the New Mexico state investment office – which manages the investment funds under the guidance of SIC – the current market value of the investment plus all fees that had been paid, or the amount of the investment compounded at the LIBOR rate plus 5 percent – whichever is greater of the two, the policy says.
According to meeting materials for the 25 April meeting, SIC considered investing with Maryland-based venture capital firm New Enterprise Associates, but could not agree on terms in part because NEA was uncomfortable with the policy.
The SIC spokesman explained that the policy was one of several considerations that led it to end investment discussions. He also said that the sovereign wealth fund has committed to NEA funds in the past. According to PEI data, NEA is in market with New Enterprise Associates 16, which launched this year with a target of $3 billion.
SIC’s private equity portfolio had a fair value of $1.7 billion at the end of 2016, according to its 31 December performance review. It had exposure to fund managers such as TPG and KKR.