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State earns nearly 10 percent on venture investments

ALBUQUERQUE, N.M. — The New Mexico State Investment Council has earned nearly 10 percent on the dollar over the past five years from SIC venture investment activity in New Mexico, according to Santa Fe-based Sun Mountain Capital.

Sun Mountain delivered its latest report on the SIC’s private equity program this month to the council’s investment committee. The full 11-member council is expected to discuss it at its next monthly meeting on Tuesday.

The firm manages the SIC’s $190 million Co-Investment Fund for direct investments in local companies, and it advises the council on its commitments to independent venture funds that do business in New Mexico.

By state statute, the SIC can commit up to 9 percent of the Severance Tax Permanent Fund in the private equity program, which the council launched in 1993. But in recent years, the council has set a more conservative, 5 percent target to first allow the program to earn more returns before committing higher levels of capital.

As of Dec. 31, 2016, the council had $271 million in net deployed capital in the program, including money in venture funds that are committed to investing in local companies, plus the funds managed by Sun Mountain. It also included $10 million the SIC committed last year to a new Catalyst Fund that will channel money to investment entities around the state to provide seed and early-stage capital for local startups.

That net deployed capital equals 5.8 percent of the Severance Tax Permanent Fund, which stood at $4.67 billion as of the end of 2016. A total of $420.4 million is available for the private equity program under the 9 percent statutory cap. But Sun Mountain projects the percentage to steadily decrease in coming years to meet the council’s 5 percent target by 2020.

The report shows a 9.8 percent rate of return on investments over the last five years.

“That’s 9.8 percent on the dollar, year in and year out,” said Sun Mountain managing partner Brian Birk. “We’re performing on a par with a number of national benchmarks.”

Brian Birk Managing Partner, Sun Mountain Capital Partners

Some venture-backed local startups with SIC capital have been acquired in recent years. Those “exits” allow venture investors to earn returns on their commitments, driving up SIC earnings.

Overall, the private equity program has generated 5.6 percent in returns since 2004, when Sun Mountain began advising the SIC and managing funds. A total of $151.7 million has flowed back into the permanent fund since then.

The private equity investments have also had a significant economic impact. SIC’s commitments have helped generate about $2 billion more in private investment in companies receiving SIC-backed venture funding. That, in turn, has created 1,532 mostly high-wage jobs, a $28 million annual payroll, and nearly $26 million in local purchases.