That’s a sharp turnaround from three years ago, when New Mexico’s permanent fund investments ranked at the bottom among public funds nationally, said spokesman Charlie Wollmann.
After pay-to-play scandals under former Gov. Bill Richardson, the SIC was reconstituted, ushering in far-reaching changes in asset management, oversight and transparency.
In the past two years, the council has fired more than a dozen underperforming investment managers and reallocated about $7 billion in assets to new managers hired through bidding processes.
Internal management of investments has been cut from about 40 percent of assets to less than 10 percent today, Wollmann said.
Under Gov. Susana Martinez, who chairs the council, the SIC also has improved transparency, providing live webcasting of meetings and publishing most reports online for public access.
“We’ve gone from one of the worst in the country in public fund performance in 2009 to one of the top-quartile funds in year-over-year returns,” Wollmann said.
Annual distributions from the permanent funds account for about 15 percent of the state’s operating budget, according to the SIC. The land grant and severance tax funds have distributed nearly $1.5 billion in the last two years.
Looking at year-to-date returns for the first nine months of 2012, Land Grant Fund performance ranked second in the nation, Wollmann said.
Overall, the state’s permanent funds have grown by $2.3 billion since September 2011, from $13.7 billion to $16 billion.
Deputy State Investment Officer Vincent Smith credited reforms in SIC management practices for higher returns.
“We’re already seeing most areas of the portfolio improve as a result of structural changes and new manager hires,” Smith said. “One SIC success story is the restructured bonds portfolio, which has generated more than $125 million in returns above the benchmark in the last 12 months.”
Regarding investment strategy, the council is shifting from volatile stock markets to other types of income-producing assets, such as real estate, timber and infrastructure.
“In the current market and in future years, we feel that will benefit the state and the permanent funds,” Wollmann said. “We don’t want to be ‘yo-yoing’ with the markets, although some exposure is important, because you get real returns there.”
The council also set up audit, oversight and investment committees to provide closer scrutiny of decisions and engagement with staff.
“The council now approves any contract over $50,000, and it regularly reviews reports,” Wollmann said. “Council members look at several hundred pages of investment material every month.”
Notwithstanding improvement in short-term returns of one to three years, long-term performance of five to 10 years has only moderately improved since 2009, remaining in the lower third quartile nationwide.
But that’s still a significant improvement from 2009, when long-term performance ranked in the bottom fourth quartile, said Doug Brown, dean of the University of New Mexico’s Anderson School of Management.
Brown served as a council member and as SIC vice chairman until last March, when he resigned.
“We’re seeing all-around superior performance by folks on the council,” Brown said. “They’re doing their homework and taking their job seriously.”
The Land Grant Fund accounts for most of the permanent funds, with $11 billion in assets. The SIC also manages the Severance Tax Permanent Fund, with $4 billion in assets, plus a water trust fund, a tobacco fund and some state client money.
— This article appeared on page A1 of the Albuquerque Journal