The New Mexico State Investment Council expects a venture program built around burgeoning industries in the state will become the highest-performing portion of the $60 billion sovereign wealth fund, based on commentary at a board meeting this week.
The system also made some of its largest commitments yet to its recently retooled Strategic Venture Capital Program at the August 16 board meeting, which Venture Capital Journal viewed during a live broadcast. The board approved commitments totaling $690 million to funds managed by 8VC, DCVC, J2 Ventures, Lightspeed Venture Partners, Lowercarbon Capital, Menlo Ventures and TCG Crossover Management.
Eschewing long-held mandates in that legacy program to earmark funds for managers solely focused on New Mexico, staff further opened the aperture for how capital can be distributed out of that fund at the same meeting.
The change was the culmination of a strategy shift that the sovereign wealth fund’s staff dates back to 2022. That’s when the system’s staff started taking a “market-rate investment approach” to diversify its investments and improve performance in funds with a New Mexico focus, based on reporting from affiliate title Buyouts.
In April, staff presented to its board an official restructuring of its legacy New Mexico Private Equity Investment Program, which had seen a net loss of $84.3 million as of June 30, 2024, since its introduction in 1990.
During the August 26 meeting, private equity portfolio manager Bruce Brown recalled how that prior program experienced underperformance and amounted to one of the “most expensive economic development initiatives in state’s history.”
“Before, we were giving money [to fund managers] solely because they were investing in the state [of New Mexico], and it didn’t matter if they were returning capital or not,” Brown said. “What we’re talking about now is focusing on financial returns for the fiscal solvency of the state on managers with long-term demonstrable impact.
“It’s one thing when you’re a $10 billion fund investing small sums, but now we’re a $60 billion fund looking to invest. And we believe it’s more responsible to invest it in managers with a track record of making lots of money for us.”
By having a local program making market-rate investments, which was defined as managers recommended by staff and consultants for potential returns, without exceptions based on presence in the state, staff said the restructured Strategic Venture Capital Program has potential to be the fund’s best-performing program.
Local insights
“We think having local information will offer us better returns than the national program, by giving us insight unavailable to those investors outside the community,” Brown said. “We believe that advances will give us advantages over a more generic program. It’s to be determined whether that’s [true].”
Staff got pushback from New Mexico State Treasurer Laura Montoya, who worried that the system could shy away from investments with emerging managers under this new directive.
She also expressed concern that there was no mandate left for managers to directly aid in the growth of New Mexico’s economy – the original goal of the program.
Brown replied that the team will still consider new managers, but they will be underwritten under a more standard process. He also said that if a promise to invest in New Mexico isn’t honored, then the system could choose not to re-up with that manager.
The Strategic Venture Capital Program will remain focused on bolstering New Mexico’s strengths, identified in meeting documents as areas such as climate technology, aerospace and defense. Meanwhile, the national private equity program will continue to include more generic venture capital commitments.
That national program represents a 10 percent exposure across the system’s portfolio, below the policy target’s 20 percent upper limit. The in-state program is also below a 9 percent target at 5 percent.
Sacca makes his pitch
Brown said he expects that to grow with “larger than normal” commitments during what the staff see as a window of opportunity to participate in an industry such as climate tech. To that end, the system is betting up to $300 million total on Lowercarbon Capital, split between its fusion company-focused Lowercarbon Q>10 fund as well as a separate co-investment opportunity fund with the manager, according to August 26 meeting materials.
Lowercarbon did not disclose a target size for the fusion fund, which is its second focused on the technology. Its first fusion fund, Lowercarbon Q>1, closed on $250 million in 2022 to “back the leading fusion companies around the world,” the firm said in a statement. “We called it ‘Q>1’ for the ratio representing net energy gain from fusion.” LPs in the debut fusion fund include Eleven Eleven Foundation and P-Squared Philanthropies, according to fundraising data from Buyouts.
Chris Sacca and co-founder Clay Dumas, who are the general partners of the new fusion fund, appeared at the meeting to discuss the new fusion fund and answer questions. They touted the near-term advantages to New Mexico and the job creation “within months” that would come from supporting this sector.
They also mentioned that they’ve never provided similar discounts to other, sometimes big-name LPs or opportunities for co-investment vehicles, but were willing to do so with NMSIC due to the “strategic nature of this relationship.”
At the same meeting, the system approved the following commitments:
- $100 million to Offset Fund I, which is managed by 8VC and Evan Loomis, general partner of Overmatch Ventures;
- $100 million combined to Lightspeed Venture Partners XV-A (Inception), Lightspeed Venture Partners XV-B (Ignite), Lightspeed Venture Partners Select VI, Lightspeed Opportunity Fund III and Lightspeed Co-Investment Fund I;
- $35 million to J2 Ventures Brookhaven Fund; and
- $15 million on top of a $35 million commitment made in June to DCVC VII.
Unlike Lowercarbon Capital, these managers represent existing relationships for NMSIC. All those commitments entered the rebranded in-state venture portfolio.
The green light was given to a pair of commitments in the national program as well. The system committed up to $90 million in aggregate to Menlo Ventures XVII, Menlo Inflection IV and Menlo Ventures Select I, in addition to up to $50 million to TCG Crossover Fund III.
The deluge of venture commitments came the same week that the state of New Mexico announced it was making a $25 million investment to launch a quantum science campus in Albuquerque alongside contributions from some of NMSIC’s existing managers, such as DCVC and Playground Global.
Roadrunner Venture Studios, which is spearheading the initiative as a branch of a New Mexico incubator program, has been partnering with the NMSIC to propel the state’s start-up ecosystem into national relevance, based on a previous Venture Capital Journal report.
Adam Hammer, CEO and co-founder of Roadrunner, told VCJ he expects this new coalition will bring in “dozens of really promising start-ups” to the region over the next decade. That’s one of the ways he’ll look to measure the initiative’s success.
“Are we building things that are drawing attention, jobs, founders to the state?” Hammer said. “If we can through this founder and residence program relocate somebody who’s in Seattle that wants to build a quantum company and they see what we’re building, they see the infrastructure, they see the partners, they see the venture dollars, [the goal is] they’ll say, ‘Hey, I need to be in New Mexico.’”
