N.M. Admin. Code § 2.60.25.11

Current through Register Vol. 35, No. 23, December 10, 2024

Section 2.60.25.11 - ASSET ALLOCATION

The most important component of investment strategy is the portfolio asset mix, or the resource allocations between the various classes of securities available to the council for investment purposes.

A. Current asset allocations and authorization: The council has currently authorized the SIO to increase the equity holdings to 30 percent of the book value of the PF and 20 percent of the book value of the STPF, and has directed that such weightings should be achieved by the end of fiscal year (FY) 81 (June 30, 1993). Equity holdings in the STPF are currently limited to 20 percent by statute. The council established these goals based on 1) the advise of the SIO, 2) the results of two asset allocations studies, and 3) the need to maintain current levels of income distributions to the beneficiaries. At the present time, the equity holdings in the two funds are substantially below the book value limitations listed above.

B. Strategic asset allocation targets and ranges: It has been recognized by the council that the two state permanent funds should have asset allocations similar to other major endowment funds in order to protect the corpus of the funds against inflation. The selected strategic asset allocation targets and ranges are as follows (based on market value):

(1) ASSET CLASS TARGET RANGE

(a) Cash and Equivalents. 5 percent 0 - 15 percent

(b) Equities 35 percent 30 - 40 percent

(c) Fixed Income 60 percent 55 - 65 percent

(2) These asset classes are defined as follows:

(a) Cash equivalents - investments in fixed income securities with maturities of one year or less, including treasury bills and notes, commercial paper, banker's acceptances, repurchase agreements, certificates of deposit, and the state treasurer's overnight deposit program.

(b) Equities - common and preferred stocks and convertible issues representing ownership interests in corporations;

(c) Fixed income - investments in securities with an obligated fixed rate of interest, including bonds, notes, debentures, mortgages, or other obligations or evidence of indebtedness.

(3) There are many other specific investments authorized in the New Mexico constitution and statutes. For strategic asset allocation purposes, however, they generally can be categorized under one of the above classifications. The constitution and statutes also contain specific percentage limitations on the various investment classes, and those limitations are presented in the following sections of this document where appropriate. The asset allocation ranges stated above conform with all current statutory and constitutional limitations.

(4) The asset allocation ranges and targets listed above also represent a long term perspective. Net new cash flows shall in general be directed to the most attractive and undervalued asset classes. For the near future, the equity class will receive the majority of available allocations as long as the equity market is attractive. Because of rapid and unanticipated market shifts and this bias towards selecting the best values, the actual allocations in certain periods may fall outside the desired ranges. Any divergences should be short term in nature and the actual allocation of assets shall be periodically compared to the above targets. During periods when the various sectors are essentially equal in perceived value, the staff will attempt to move the overall allocations back within the desired ranges and towards the target levels.

C. The investment committee: On a quarterly basis, the investment committee, which consists of the state investment officer, deputy state investment officer, and the equity, fixed income, and differential rate investment officer principals, will meet to discuss overall asset allocations. For each meeting, the investment committee members will have formed opinions on interest rates, inflation, secular trends in the economy, the current stage of the business cycle, and the outlook for economic expansion or recession. The investment committee and/or other staff will hold additional meetings weekly or as necessary to evaluate the funds' performance.

N.M. Admin. Code § 2.60.25.11

Recompiled 10/1/01