New Mexico SIC eyes direct lending, distressed debt in FY 2019 – exclusive

The firm has committed two credit vehicles for each strategy over the past year.

The New Mexico State Investment Council will likely be looking for additional opportunities in direct lending and distressed debt in the coming fiscal year, according to a source familiar with the situation.

Direct lending and distressed debt consist of two of the four sub-categories in the Santa Fe-based sovereign wealth fund’s non-core fixed income bucket, which houses alternative credit investments. The pair of strategies has a 20 percent-40 percent allocation range.

SIC’s direct lending portfolio is under its target at 14.7 percent, while distressed debt is at the lower end of the goal range at 21.7 percent as of 31 March, according to numbers this person supplied to Private Debt Investor.

SIC, which declined to comment, will likely consider an investment pacing plan for fiscal year 2019, which begins in July, at its meeting next week.

The other two portions of the non-core category are structured credit and unconstrained fixed income, which also have a 20 percent-40 percent target range. The former’s allocation at the end of the first quarter stood at 31.4 percent, while the latter’s was 32.2 percent. SIC has moved to decrease its exposure to unconstrained fixed income, the source said. It redeemed its account with PIMCO, according to May meeting materials.

In addition, to its non-core fixed income book, the firm also has a core fixed income category, which is focused on liquidity and stability. The goal for that allotment is 10 percent the SIC’s Land Grant and Severance Tax permanent funds. Non-core allocations target 15 percent of the LGPF and 12 percent of the STPF long-term. Together, those two allocations make up the SIC’s fixed income portfolio.

For the SIC at large, the fund’s total fixed income allocation is $5.9 billion, or 24.89 percent of its portfolio. Core fixed income stood at 15.42 percent, while non-core fixed income made up 9.47 percent.

Over the past 12 months, SIC has several credit commitments. Four $100 million commitments were made to two direct lending vehicles – Golub Capital’s Golub Capital Partners 11 and HPS Investments’ HPS Specialty Loan Fund 2016 – and two distressed debt funds – PIMCO’s PIIMCO BRAVO Fund III and Silver Point Capital’s Silver Point Distressed Opportunity Institutional Partners.

Distressed debt fundraising has been on the rise in recent years, with distressed debt vehicles closing in the first quarter totalling 35 percent of capital raised over that time, according to PDI data. In 2017, the strategy consisted of 32 percent of all money raised for private debt, which was up from 2016. For its part, senior debt was no slouch of a strategy either in the first three months of the year. It consisted of 34 percent, or $12.61 billion of the $37.1 billion.