The New Mexico Public Employees Retirement Association, Santa Fe, restructured its $1.3 billion alternative liquid credit portfolio to reduce the portfolio from an overweight position and reallocate capital to illiquid credit investments, according to staff reports.
The pension plan’s $18.4 billion alternative liquid credit portfolio was 49.7% of its $2.7 billion credit-focused portfolio and 7.3% of the total fund, up more than 3 points percentage above its target allocation of 4%.
As part of the restructuring, New Mexico PERA officials are seeking full repayments on a $226 million multi-strategy credit mandate managed by Napier Park Global Capital, $172 million from a hedge fund managed by Anchorage Capital Group, a loan obligation guaranteed by Eagle Point Credit Partners for $62 million. equity portfolio and a $43 million investment in the distressed-debt hedge fund Canyon Value Realization Fund.
New Mexico PERA will seek partial redemptions of $50 million each from credit hedge fund Ellington Enhanced Income Fund and Mudrick Stressed Credit Fund, a performance credit mandate managed by Mudrick Capital Management. Prior to the takeover, Ellington had $217 million and Mudrick had $199 million as of December 31.
All proceeds will be added to the pension fund’s high-yielding $208 million PineBridge Investments portfolio. Pension fund officials plan to tap into assets in PineBridge’s high-yield portfolio to meet illiquid credit commitments.
Separately, pension fund managers have committed up to $100 million to Rockwood Multifamily Partners, a grassroots, open-ended U.S. multifamily real estate fund run by Capital of Rockwood.
New Mexico PERA also replaced Sarofim Realty Advisors as managing partner of a separately managed $94 million multifamily and commercial real estate account with Rockwood Capital. In January 2017, the board committed $150 million to acquire and/or build commercial and multi-family properties, specifically targeting grocery-anchored retail in the United States. Sarofim had invested approximately $97 million, but the investment period was suspended when a legal key person provision was triggered. Sarofim CEO Scott Fitzgerald could not immediately be reached for comment. Al Galpern was the CEO of Sarofim when the pension fund entered into the strategy.
Pension fund officials are also buying out a $127 million master limited partnership account separately managed by Blackstone’s Harvest advisers and investing the capital in DWS Global Infrastructure Securities, which had $117 million in assets at the time. December 31, as a low-volatility investment that maintains exposure to the energy midstream sector.
Separately, the board increased the pension fund’s active risk budget to 2.5%, split between a maximum non-actionable risk of 2.25% in alternative investments and an actionable risk of 1.25%. Prior to the change, the pension plan had an active risk budget of 1.5% which was not divided into actionable and non-actionable risks. According to an investment committee presentation, the new strategy requires short-term remedies for violations of actionable active risk while avoiding the forced sale of illiquid assets to remedy the violations.
The active risk budget is a planning tool reflecting the board’s risk tolerance that helps plan managers monitor and measure whether the active risks they are taking are resulting in excess return, according to the report. The Board maintains its active risk return target of 1%.