Exclusive: New Mexico plugs $100m into Carlyle Power II

The endowment’s second real assets investment in as many months brings the fund closer to its $1.5bn target.

The New Mexico State Investment Council (NMSIC) has approved a $100 million commitment to Carlyle Power Partners II (CPP II), Charles Wollmann, the endowment’s communications and legislative affairs director, told Infrastructure Investor on Wednesday.

The State Investment Council unanimously greenlighted the commitment at a recent meeting following recommendations from both its investment staff and its consultant LP Capital Advisors.

“The strategy CPP [II] will employ is complementary to our existing portfolio of energy investments and our overall real assets strategy (targeting 12 percent of our overall assets),” Wollmann said in an e-mailed response.

Launched by The Carlyle Group in June 2014, CPP II targets power generation assets – both individual as well as portfolios – that offer value-added potential through operational improvements and “strategic opportunities”, according to SIC meeting materials.

“The CPP II $100 million investment is a new commitment for SIC, though we have exposure to some previous Carlyle funds,” Wollmann said.

According to the meeting materials, NMSIC staff and LP Capital Advisors have been reviewing the power sector for the last 18 months, exploring about a dozen strategies in the power space. “The CPP II opportunity is a compelling offering in the power sector and the most suitable for NMSIC’s portfolio from a diversification and risk-reward standpoint,” the endowment's investment staff wrote in a memo.

Carlyle had raised $839.3 million for the vehicle as of 14 August 2015, according to a filing with the Securities and Exchange Commission. CPP II has a target of $1.5 billion. 

According to a presentation the firm made to the SIC, Carlyle has already deployed $400 million via CPP II across three transactions. These include Southeast PowerGen, a portfolio of six natural gas-fired power plants in the US Southeast, in which Carlyle acquired a 75.05 percent stake through CPP II and Carlyle Power Opportunities Capital Partners LP; the acquisition of the Rhode Island State Energy Centre, a 583MW natural gas-fired power plant; and Essential Power, a portfolio of 11 primarily gas-fired assets across New England and the Pennsylvania-Jersey-Maryland power market. This last transaction has not yet closed.

NMSIC has separate allocations for energy and infrastructure investments, with both – along with agriculture, commodities and timber – forming part of its real assets portfolio. The endowment has set a target allocation of 12 percent for its real assets portfolio and a 0-40 percent allocation for energy within real assets. The same target applies to infrastructure.

The commitment to Carlyle comes one month after NMSIC decided to invest $75 million with Brookfield Infrastructure Fund III, a follow-on pledge to the $100 million NMSIC committed to BIF II in 2013.

As of 1 March 2016, NMSIC had approved commitments of $500 million to energy and $515 million to infrastructure. These represented respectively 28.3 and 29.2 percent of its real assets portfolio, which totalled $1.77 billion.

Headquartered in Santa Fe and with assets under management totalling $19.6 billion, the State Investment Council manages the three trust funds that make up the New Mexico Permanent Funds: the Severance Tax Permanent Fund, the Land Grant Permanent Fund and the Tobacco Settlement Fund. SIC is not related to New Mexico's pension systems and belongs to all New Mexico residents.