OPINION: Protect, grow permanent fund for the future

OPINION: Protect, grow permanent fund for the future
Albuquerque Journal
By: Gov. Susana Martinez And Land Commissioner Ray Powell / As Members Of The State Investment Council
October 9, 2014

http://www.abqjournal.com/476789

ALBUQUERQUE, N.M. — The state’s Land Grant Permanent Fund will distribute almost $600 million this year to New Mexico schools and other beneficiaries, a year-over-year increase of more than $60 million.

In fiscal year 2016, we expect the Land Grant Permanent Fund and our other permanent endowment, the Severance Tax Permanent Fund, will distribute as much as $850 million in funding to benefit public schools and pay for government services.

While many New Mexicans are unaware of these benefits, without them, we would all be paying much higher taxes.

As members of the State Investment Council, we ask for your vote on Nov. 4 for Constitutional Amendment 5. Amendment 5 will allow us as fiduciaries to better manage the Land Grant Permanent Fund, and should have a long-lasting and valuable impact on the state’s investment returns.

When the Legislature overwhelmingly passed Amendment 5, both Democratic and Republican legislators overwhelmingly agreed that Amendment 5 is not only critical for New Mexico, it is also common sense. Amendment 5 requires the State Investment Council to increase the standard of care under which it must manage our $14 billion Land Grant Permanent Fund.

It raises the current responsibility level of the council from that of “ordinary prudence” to a higher expert standard already adopted by more than 40 states – the Uniform Prudent Investor Act.

As well as raising our requirements, Amendment 5 also removes the cap restricting the fund’s international investments at 15 percent – a ceiling lower than what most institutional investors consider to be prudent. Our peer funds across the nation today invest from 18 percent to 25 percent of their assets internationally.

If passed, Amendment 5 will give the council and our investment professionals the tools we need to decrease risk and appropriately diversify our portfolio in today’s global economy.

The funds which we oversee have grown by $6 billion since our current council was formed in 2010. We have replaced most investment managers and consultants, re-constructed the portfolio, re-organized the staff, adopted codes of ethics and conduct, and the funds have achieved investment returns of 16.5 percent annually over the past four years ending June 20, more than doubling our target investment return of 7.5 percent.

We have also recovered more than $28 million in connection with the pay-to-play scandal which occurred before we assumed responsibility for the funds. Best practices have been put in place to guide the council in future years, and best-in-class investment managers and consultants have been retained to guide our investments.

New Mexico’s permanent funds are known as “sovereign wealth funds,” and as New Mexicans we can all be justifiably proud of the fact that New Mexico has the third largest sovereign wealth fund in the nation. These funds are endowments similar to those held by universities, and they are designed to provide benefits for the generations living today and, just as importantly, for those to come.

Endowments generate earnings each year – as endowment funds grow, so do their earnings – enabling programs to improve and providing the “buying power” needed to keep up with inflation and population growth. About 84 percent of the annual earnings from the Land Grant Permanent Fund support public schools, with the remainder supporting our state’s universities, specialty schools (The School for the Blind, School for the Deaf and New Mexico Military Institute) and other governmental beneficiaries.

Created over 50 years ago and funded each year primarily from oil and gas revenues, the funds provide a mechanism which allows depleting energy resources to continue to generate financial benefits long after they have been reduced or exhausted.

Each member of the council is a fiduciary for the funds, and as such we are required to invest prudently. We ask for your support in helping us to properly perform our duties to the funds on your behalf.

Please vote Yes on Amendment 5 on Nov. 4th, and support our efforts to protect and grow the permanent fund for this generation, while helping ensure it will provide equal or greater benefits for future generations of New Mexicans.

Also signed by the rest of the State Investment Council: State Treasurer James Lewis, Department of Finance and Administration Secretary Tom Clifford, Peter Frank, Leonard Lee Rawson, Scott Smart, Harold Lavender, Linda Eitzen, John Young and Tim Jennings.