The New Mexico State Investment Council recently raised its target for in-state private equity and venture capital investments program from 5.5 percent to 9 percent for the state’s $5.5 billion Severance Tax Permanent Fund, according to its Nov. 26 meeting materials.
The program is aimed primarily at emerging managers based in the state as well as out-of-state funds that invest in New Mexico-based companies with the goal of stimulating the state’s economy and providing a return to the severance tax fund, which re-invests state taxes from oil, gas and other natural resources and helps lower state taxes for individuals.
Overall, the program is designed to help foster New Mexico’s growing entrepreneurial ecosystem.
The Santa Fe, New Mexico SIC expects to commit between $75 million and $125 million to venture capital in 2020. The Council expects 2021 commitment pacing to be in the same range, but said it will revisit this target next year.
“By targeting strategic investments in our own backyard, we can achieve positive financial returns while also creating jobs and new industries here in New Mexico,” said Governor Michelle Lujan Grisham, chair of the State Investment Council.
In-state and regional GPs will be expected to lead early funding rounds and have capital available for follow on investments, according to meeting materials. The Council will initially commit up to $5 million for in-state and regional-based emerging funds but will have the flexibility to increase subsequent commitments to $10 million.
The focus of national-based VCs will be to bring domain expertise and out-of-state business connections to New Mexico. One such partner is Phoenix Venture Partners, a materials science-focused fund based in San Mateo, California. The Council recently made a $20 million commitment to the firm’s $100 million second fund.
SIC also recently approved a $10 million commitment to Anzu Partner’s $150 million targeted second fund. The Washington DC firm invests in innovation in manufacturing, materials and other technologies.
Although New Mexico’s venture program has historically underperformed the Cambridge Venture Capital Index, the Council is expanding the program because it offers portfolio diversification and state job and industry creation. The program returned 7.8 percent over a one-year period and 9.5 percent over a three-year period, while the index returned 20.9 percent and 15.8 percent over the same time frame, according to meeting documents.
The SIC also manages New Mexico’s Land Grant Permanent Fund, which helps fund the state’s public schools and universities. The two funds combined have almost $27 billion in assets under management.