Governor Orders Suspension of Alternative Investments Pending Comprehensive Investment Policy Review to Address Third Party Disclosure and Transparency Concerns
New Practices Will Require Full Disclosure of Payments Made to Marketers, Placement Agents, and All Others Who Receive Payment from Money Managers Who Invest State Funds
Governor's News Release:
(Santa Fe) – Governor Bill Richardson is ordering the State Investment Office to finalize sweeping new investment policies and bring them to the full State Investment Council for its next meeting on May 26. If approved, the State will require its investment managers to disclose any and all placement fees, marketing arrangements and other payments these managers make, relative to their investments for the New Mexico Permanent Funds. Until a new policy is in place, Governor Richardson has ordered a suspension of alternative investments by the SIC.
"In the past few weeks, several serious questions have been raised regarding the arrangements between the state's external investment managers and the marketers those investment funds pay to represent them," said Governor Richardson. "While this practice has been fairly common in the investment industry, the added potential for conflict of interests concerns me. For this reason, today I am ordering broad policy and procedural changes be implemented by the State Investment Office, pending review and approval by the full Council next month."
These measures would supplement the legislation signed by Governor Richardson April 7, which requires disclosure of third party marketing agents who are hired by outside money managers to market their funds to institutional investors like the SIC. The State Investment Office supported that legislation (HB 876) and recommended its passage. The Investment Office neither hires placement agents nor pays their fees.
Governor Richardson has also instructed State Investment Officer Gary Bland to initiate termination of the SIC's private equity advisor, Aldus Equity Partners, due to concerns raised by an ongoing investigation in New York, in addition to significant due diligence and follow up by Investment Office staff in recent weeks.
"At this time, we believe it is the most practical step for the Investment Office to take, given the realities of the current environment," said State Investment Officer Gary Bland. "Private equity is a critical asset class, and under existing circumstances, we feel it appropriate to forge ahead."
In the interim, the State Investment Office will employ existing financial consultants to guide its private equity allocation, while simultaneously looking for a permanent private equity advisor.
The State Investment Office today manages $11.8 billion in state endowment funds. Under historically challenging market environments, these Permanent Funds have seen positive investment returns of more than $2.7 billion under Governor Richardson, while also distributing more than $3 billion to state beneficiaries. Performance data through the first quarter of 2009 ranks investment returns for the SIC's Land Grant Permanent Fund in the top 30% of public funds around the country for one and three-year periods, and in the top 5% of public funds nationwide for the quarter ending March 31st.
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