Key man issue forces New Mexico to alter commitment

The New Mexico State Investment Council had been poised to commit $100m to Western Asset Management until the firm announced CIO Steve Walsh’s plans to retire.

The pending retirement of Western Asset Management’s chief investment officer Steve Walsh has led the New Mexico State Investment Council to cancel a planned $100 million commitment for floating rate bank loans, according to state documents.

The $16.5 billion endowment approved a $100 million commitment to Credit Suisse Asset Management to fulfill the floating rate bank loan RFP at its meeting last week, New Mexico spokesman Charles Wollman told Private Debt Investor.

“At the conclusion of the due diligence, the SIC Evaluation Committee and RV Kuhns agreed to recommend to the NMSIC that mandates be awarded to ING Investment Management … and Western Asset Management. Shortly after this, Western Asset Management announced their chief investment officer would be retiring the following year,” according to 26 March SIC minutes.

Walsh’s departure triggered a “key person event”, Wollman said, which forced SIC’s investment staff and advisors to reconsider their recommendation of Western Asset Management. ING Investment Management received a $100 million commitment in March.

“We brought that back to our investment committee. They felt more comfortable going with Credit Suisse,” Wollman told Private Debt Investor. “All five of our finalists were highly qualified to do the job — they just felt that Credit Suisse was ultimately our second choice for that position.”

Western Asset Management declined to comment.

The firm’s chief executive officer James Hirschmann notified clients of Walsh’s plans to retire in March 2014 on 21 March, according to a letter seen by Private Debt Investor. Until then, Ken Leech will share Walsh’s duties as CIO to ensure a smooth transition.

“During the transition period that will extend over the next 12 months, Steve and Ken will serve as co- CIOs. The transition process will assuredly be a smooth one as Ken and Steve have worked closely together for over 20 years and jointly led the team from 1998 to 2008,” according to the letter. “Steve will focus his efforts on US portfolios and products and Ken will focus on global and emerging market portfolios and products. As the year progresses, Ken will expand his responsibilities to cover all client portfolios.”

New Mexico’s advisor, RV Kuhns & Associates, highlighted Credit Suisse’s low rate of turnover among its asset management team in a memo detailing their recommendation. Credit Suisse’s Asset Management is led by CIO John Popp and its senior portfolio managers have more than 15 years of experience working together, according to an RV Kuhns report included in last week’s SIC meeting materials. The team had $21.2 billion in assets under management as of 31 December, which includes $8.3 billion in bank loans, $1.1 billion in high yield and $11.8 billion in CLOs.
New Mexico’s commitment to Credit Suisse falls under its real return strategy, to which it has a 10 percent overall target allocation.