New Mexico Makes Historic Move into Infrastructure Debt

Despite a lower return profile, council opts to diversify into nascent infra strategy.

The New Mexico State Investment Council (SIC) made its first foray into infrastructure debt this month, approving a $200 million commitment to the Global Infrastructure Partners (GIP) Spectrum debt fund.

Infrastructure debt funds are relatively few and far between compared to investment vehicles that deploy equity to secure stakes in projects across the map—and typically have lower target returns as well. In the case of the Spectrum fund, it has a 9% gross IRR target, whereas many other private equity infrastructure funds have a gross IRR target of about 13-15%.

A 2018 Moody’s study reported that default rates were much lower in infrastructure debt and recovery rates were much higher than comparably rated corporate debt. An analysis from GIP concluded that there is a higher risk premium as well within infrastructure debt.

The commitment will be split in two, with $100 million allocated to the fund itself, and $100 million in a co-investment vehicle that Global Infrastructure Partners has complete investment authority over.

A primary reason for the selection of a debt fund, a spokesperson for the council said, was to provide diversification benefits to New Mexico’s fixed income portfolio. “The infrastructure exposure GIP provides will help diversify the non-core fixed income portfolio away from corporate exposure and will be placed into the lending strategies portion of the non-core portfolio,” a report reads. “We see the Spectrum fund as a great diversifier to our current portfolio.”

Spectrum will focus on senior debt across core infrastructure verticals within private, public, and syndicated credits. Its $1.5 billion of targeted capital will be invested in relatively low-risk assets within projects that maintain stable cash flows and high barriers to entry.

Simultaneously with the Spectrum vote, the SIC also approved respective $100 million and $75 million commitments to the Advent International GPE IX fund and Platinum Equity Capital Partners V funds, further bolstering its $1.9 billion private equity portfolio, which maintains a 12% target allocation.

The SIC also recently approved a $100 million commitment to Brookfield Infrastructure Fund IV, the flagship Brookfield private equity infrastructure fund which is targeting a capital raise of $17 billion. According to its most recent private markets report, the SIC approved $827 million across 10 commitments to infrastructure funds, which together have a net asset value of $515 million. Its portfolio includes the Blackstone Infrastructure Partners fund, Macquarie Asia Infrastructure Partners IV, the open-ended IFM Global Infrastructure Fund, and the JP Morgan Infrastructure Investments Fund.

The SIC expects the next seven to 10 years to consist of sluggish economic growth, modest interest rates, and stable inflation rates. 

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