SANTA FE – For the first time since the economy crashed in 2008, the New Mexico State Investment Council has set aside new money for investments in local venture capital funds.
The council agreed on Tuesday to allocate an average of $40 million a year for the New Mexico Private Equity Program. That money can be used for investments in independent venture capital funds that commit money to New Mexico-based businesses. It can also be used to shore up the SIC’s Co-Investment Fund, which makes direct financial commitments to local startup companies.
Sun Mountain Capital, which manages the Co-Investment Fund and advises the SIC on the Private Equity Program, expects the new allocation to generate investments of $5 million to $10 million in three to four independent, local venture funds each year. Each investment must be individually approved by the council.
“We’ve got a substantial pipeline of potential fund investments,” said Sun Mountain Managing Partner Brian Birk. “We expect to bring the first funding proposals to the SIC in April or May.”
By law, the SIC can commit up to 9 percent of the Severance Tax Permanent Fund to the Private Equity Program. But SIC investments from the Severance Fund fell during the recession, reducing the amount of capital available for venture investments. And, even after the market rebounded, the council was reticent to commit more money until it saw more payback from previous venture investments.
Now, however, with returns on the rise and with the Severance Tax Fund steadily climbing in value, the SIC is more willing to commit capital. In November, the council approved $20 million in new money for the Co-Investment Fund, and it agreed to consider Sun Mountain’s plan to allocate more capital for independent venture firms this year.
The new $40 million annual allocation will only raise venture investments to about 5 percent of the Severance Tax Fund in 2013, rather than the 9 percent allowed. Sun Mountain deliberately recommended the lower level to make sure investments go only to top-performing funds with commitments to New Mexico.
“If we have a number of outstanding investment opportunities over and above the 5 percent level, then we’ll make a case for that,” Birk said. “On the other hand, if there aren’t enough good opportunities, then we could lower the target.”
The 10-member SIC approved the new allocation in a 6-1 vote. Council member Leonard Lee Rawson opposed it. Gov. Susana Martinez, who chairs the council, and two other members were absent.