SIC Meeting Materials 5-27-14

State of New Mexico STATE INVESTMENT COUNCIL

41 Plaza La Prensa Santa Fe, New Mexico 87507

Phone: (505) 476-9500 Fax: (505) 424-2510

STATE INVESTMENT COUNCIL MEETING AGENDA GOVERNOR’S CABINET ROOM, STATE CAPITOL

SANTA FE, NEW MEXICO TUESDAY, MAY 27, 2014, 9 AM

1. Opening Matters

a. Roll call & introduction of guests (Governor Martinez, Chair) (5 min) b. Approval of agenda c. Approval of minutes, April 22, 2014

2. Investment matters: Investments Requiring Vote (120 min) a. Private Equity Investment Advisory Committee report (Linda Eitzen) b. Vote: Ares Special Situations Fund IV, L.P. (Vince Smith & LP Capital) c. Vote: Epic Ventures V, L.P. (Smith & Sun Mountain Capital) d. Investment Committee report (Harold Lavender) e. Vote: Brookfield Real Estate Finance Fund IV (Smith & Townsend) f. Vote: Real Return Investment Policy update (Smith & Geraldine Barlow)

3. Other Investment Matters: Investment Performance, Market Updates & Private Equity Reporting (90 min)

a. 4Q Real estate performance review (Townsend) b. 4Q 2013 National private equity performance review (LP Capital) c. 4Q 2013 NMSIC Co-Investment Fund review (LP Capital) d. 4Q 2013 New Mexico Private Equity Investment Program performance review (Sun Mountain) e. National private equity reporting Items (informational) f. New Mexico Private Equity Investment Program reporting items (informational) g. SIC performance report, TUCS, & monthly activity summary (Smith & RV Kuhns)

4. State Investment Officer’s Report (Steve Moise) (10 min)

5. Finance Matters: Committee & Informational Reports: Vote/ Discussion (10 min)

a. CFO report (Brent Shipp)

6. Governance Matters: Committee Reports: Discussion (15 min) a. Governance Committee report (Scott Smart)

7. Closing Matters (Governor Martinez) (5 min)

a. Old or new business b. Next Sic meeting date: Monday, June 30, 2:30 pm, Santa Fe, NM

8. Public Comment Period (Governor Martinez) (10 min)

9. Vote to Enter Executive Session Pursuant to NMSA, 1978: (Governor Martinez) (30 min)

a. 10-15-1(H)(2) Limited Personnel Matters: employee hiring, retention & compensation b. 10-15-1(H)(7) Ongoing or pending litigation: investment matters & related legal issues

10. Adjournment

SUSANA MARTINEZ

GOVERNOR

STEVEN K. MOISE STATE INVESTMENT OFFICER

ROBERT “VINCE” SMITH, CFA

DEPUTY STATE INVESTMENT OFFICER

Motions for voting items at May 27, 2014 SIC Meeting Suggested wording:

(1b) Approval of Agenda I move to approve the agenda for today’s meeting.

(1c) Approval of minutes I move that the State Investment Council approve the meeting minutes for April 22, 2014.

(2b) Ares Special Situations Fund IV, L.P. (LP Capital) Based upon the recommendation of the Private Equity Investment Advisory Committee, LP Capital Advisors and Staff, I move that the SIC approve a commitment of $75 million from the National Private Equity Program to Ares Special Situations Fund IV, L.P. (the “Fund”), and subject to and contingent upon New Mexico state law, New Mexico State Investment Council policies, negotiation of final terms and conditions and completion of appropriate paperwork.

(2c) EPIC Ventures V, L.P. (Sun Mountain Capital) Based upon the recommendation of Private Equity Investment Advisory Committee, Sun Mountain Capital and Staff, I move that the SIC approve a commitment of the lesser of 10% of the total committed capital (including the SIC’s commitment) or $10 million from the New Mexico Private Equity Program to EPIC Ventures V, L.P. (the “Fund”), and subject to and contingent upon New Mexico state law, New Mexico State Investment Council policies, negotiation of final terms and conditions and completion of appropriate paperwork.

(2e) Brookfield Real Estate Finance Fund IV (Townsend) Based upon the recommendation of the Council Investment Committee, the Townsend Group and Staff, I move that the SIC approve a commitment of $75 million to Brookfield Real Estate Finance Fund IV, subject to and contingent upon New Mexico state law, New Mexico State Investment Council policies, negotiation of final terms and conditions and completion of appropriate paperwork.

(2f) Real Return Investment Policy Based upon the recommendation of the Council Investment Committee and staff, I move that the SIC approve its updated Real Return Investment Policy, as presented to and discussed by members of the Council today.

(9a&b) Executive Session I move that the State Investment Council enter executive session, pursuant to NMSA 1978 Section 10-15-1(H)(7), to discuss ongoing or pending litigation: PE Secondary sale, investment matters and related legal issues; and to discuss as allowed under Section 10-15-1(H)(2), Limited Personnel Matters: employee hiring, retention and compensation.

ACTION SUMMARY

STATE INVESTMENT COUNCIL

April 22, 2014

Item Action Page # APPROVAL OF AGENDA Approved 3 APPROVAL OF MINUTES March 25, 2014 Approved 3 INVESTMENT MATTERS: DISCUSSION OR VOTE Investment Committee report Informational 3 First Reserve Energy Infrastructure Fund II $100 million investment 3 Real Return Asset Allocation Study Approved 6 OTHER INVESTMENT MATTERS SIC performance report & monthly activity summary Informational 7 LGPF & STPF Financial Model Review Informational 7 NM Private Equity Program reporting items Informational 8 STATE INVESTMENT OFFICER’S REPORT Informational 8 FINANCE MATTERS: COMMITTEE AND INFORMATIONAL REPORTS Audit Committee report Informational 9 CFO report Informational 9 GOVERNANCE MATTERS: DISCUSSION Governance Committee report Informational 10 CLOSING MATTERS Old & New Business [none] 10 Next meeting date: 5/27/2014 10 EXECUTIVE SESSION 11 2015 COUNCIL BUDGET AUTHORIZATION 11 All SIC employees employed at SIO for more than one year, classified and GovEx, receive 3% increase Approved PUBLIC COMMENT PERIOD 11

New Mexico State Investment Council: April 22, 2014 2

MINUTES OF THE

NEW MEXICO STATE INVESTMENT COUNCIL

Santa Fe, New Mexico

April 22, 2014

1. OPENING MATTERS a. Roll call and introduction of guests: quorum present A regular meeting of the New Mexico State Investment Council was called to order on this date at 9:00 a.m. in the Governor’s Cabinet Room of the State Capitol Building, Santa Fe, New Mexico. A quorum was present: Members Present: Mr. Peter Frank, Public Member, Vice Chair Ms. Linda Eitzen, Public Member Mr. Tim Jennings, Public Member Mr. Harold Lavender, Public Member Mr. Leonard Lee Rawson, Public Member Mr. Scott Smart, Public Member Mr. John Young, Public Member Members Absent: The Honorable Susana Martinez, Governor Dr. Thomas E. Clifford, Secretary of Finance & Administration The Honorable James B. Lewis, State Treasurer The Honorable Ray Powell, Commissioner of Public Lands Attorney General Representative: None. Staff and Committee Members Present: Mr. Steven K. Moise, State Investment Officer Mr. Vince Smith, Deputy State Investment Officer Mr. Evan Land, General Counsel Mr. Bruce Brown, Deputy Counsel Mr. Greg Kulka, Director of Private Equity Mr. Brent Shipp, Chief Financial Officer Mr. Wade Franks, Stable Value Director Ms. Geraldine Barlow, Real Return Director Mr. Charles Wollmann, Director of Communications Ms. Kerri Segell, Executive Assistant Guests Present: [See Sign-in Sheet.] b. Approval of agenda


Ms. Eitzen moved approval of the agenda, as published. Mr. Lavender seconded the motion. Mr. Rawson moved an amendment that the Region III Housing Authority be discussed during Executive Session. Mr. Jennings seconded the amendment. The motion to approve the agenda, as amended, passed unanimously by voice vote. c. Approval of minutes: March 25, 2014 Ms. Eitzen requested the following correction to the last sentence of the PEIAC report on page 4: “PEIAC has been very pleased with the performance of the program after it changed its focus in 2014 2004.” Mr. Smart moved approval of the minutes of the March 25, 2014, meeting, as amended. Mr. Lavender seconded the motion, which passed unanimously by voice vote. 2. INVESTMENT MATTERS: INVESTMENTS REQUIRING VOTE a. Investment Committee Report (Harold Lavender) Mr. Lavender stated that the summary notes for the April 10 CIC meeting were in the Council packet. Mr. Lavender noted that reconstruction of the portfolios is largely over and the CIC is now at the next phase, where it is spending significantly more time than before on asset allocation and related issues. In addition to an excellent presentation of the Real Return Asset Allocation Study, there was also a very helpful education session on agriculture investing. b. Vote: First Reserve Energy Infrastructure Fund II (Vince Smith & Townsend) Ms. Barlow stated that The Townsend Group is recommending a $100 million commitment to First Reserve Energy Infrastructure II (First Reserve II) for the NMSIC’s Real Assets Portfolio. She commented that First Reserve is very different but complementary to the other exposures the NMSIC has within energy; they are primarily a contracted and regulated energy strategy relative to the other assets in the portfolio, which are more focused on E&P and upstream development and growth. Jack Koch, consultant with The Townsend Group, summarized Townsend’s report. -- First Reserve is a $2 billion real assets fund focused on the acquisition and management of energy infrastructure assets. There is a hard cap of $2.5 billion, which they anticipate reaching by the end of May. -- The fund is sponsored by First Reserve, an employee owned private equity firm headquartered in Greenwich and founded in 1983 by William Macaulay and John Hill. -- First Reserve is one of the most active global investors across the energy value chain through two primary strategies: high return private equity buyouts since 1992, and lower return energy infrastructure since 2009. Fund II will follow a similar strategy to the 2009 vintage $1.23 billion First Reserve Energy Infrastructure Fund I. -- First Reserve II is seeking a 14 percent gross return (11-12 percent net). Importantly, it has an average cash yield of 7-11 percent.


-- Primary strategy is targeting existing operating assets within the energy space with long-term contracts already in place. The primary targets are contracted power; contracted midstream; contracted energy assets, and regulated transmission and distribution. -- These assets are expected to have long-term revenue streams, which is based on the long-term contracts that are in place. -- Since the 1980s, First Reserve has raised over $23 billion in equity commitments from investors and deployed approximately $20.4 billion through 13 prior energy related partnerships. The bulk of this is through the buyout series, which invested $19.7 billion in 118 portfolio companies, generating a 32.4 percent gross IRR on realized investments and a 25.4 percent gross IRR (16.4 percent net) on all investments as of June 30, 2013. -- Infrastructure Fund I has invested $654 million since 2009 in seven platform investments generating a net IRR of 14.5 percent since inception. While the fund is largely unrealized at this point, the cash flow has been very strong. Over 2012 and 2013, there was respectively an 8.9 and 10.3 percent current cash yield, which greatly reduces the risk profile of these investments because a significant amount of capital is returned through annual cash flow distributions. Mr. Koch said Townsend likes First Reserve because they are specialists in the energy space. For the last 30 years, energy and global energy is where they focus. Over that time period, they have established very strong relationships – In Fund I, six out of seven of the transactions were acquired off-market. These strategic relationships will also be very important moving into Fund II. He noted that fees are generally better than what Townsend sees in the market. First Reserve managing directors Mark Florian and Cathleen Ellsworth introduced themselves and made a presentation. Ms. Eitzen asked why First Reserve has chosen to take such a “shotgun approach” to the energy area in this fund, since it requires them to have an incredible range of skills. Mr. Florian responded that they are focused on power in midstream, and within that area there are about 400 companies they can potentially talk to about creating these joint ventures. He said if they find ten great opportunities, they can pick the one or two they think have the best risk and return characteristics for the fund. Ms. Ellsworth added that these areas lend themselves to the types of contracts First Reserve is looking for. Ms. Eitzen asked to what degree these contracts are subject to regulatory risks. Mr. Florian responded that, in the case of utilities or companies using their pipelines, those are typically directly with corporate counterparties. If there is an additional expense because of regulatory changes within those contracts, such as with power plants, there is often a pass-through back to the utility or counterparty. He added that this is something that First Reserve needs to focus on and worry about; and within these contractual arrangements, they work on de-risking as much as possible. Ms. Ellsworth said First Reserve recognizes regulatory risks and structures the contracts in a way that protects them from those changes to the extent possible. Ms. Ellsworth stated that not all of the contracts have regulatory risk. The area with the greatest regulatory risk is currently renewables, which is about a one-fourth of the portfolio.


In terms of exit strategies, Ms. Eitzen asked who is going to buy it from them; and if these are long-term contracts, why isn’t this an open-end fund. Mr. Florian responded that, when they originally set up the fund, they had a bunch of investors who wanted two different things. Some wanted 10-year funds, which is what they were used to, while others said they preferred perpetual funds. First Reserve tried to balance that, with a long-term buy-and-hold investment thesis with a final determination date for the fund. Ms. Ellsworth said the buyers would be MLPs back to the corporate partners, or a utility or another infrastructure fund; or in some cases, they can take public an MLP or an IPO. She said they think a lot about whom they are selling to and model what the residual value would be to the buyer in year 12, for example. Responding to Ms. Eitzen, Ms. Barlow said this investment sits in the energy portfolio, which is at about $400 million, or about 1.2 times the estimated allocation for the energy space. This is prudent because some of the capital has yet to be drawn down, and it may well take two or three years to be fully invested. By that time, it is expected that some of the managers will have started returning capital. Responding to Mr. Jennings on what insurance First Reserve carries for natural disasters, Mr. Florian said First Reserve has property casualty insurance, environmental insurance and business interruption insurance. Mr. Jennings asked how First Reserve decides how much money to invest in operations and maintenance. Mr. Florian responded that there are three or four ways to triangulate the appropriate O&M structure, including plant management and the expertise management teams at the companies; First Reserve’s operating partners inside the fund who are knowledgeable about O&M; and using outside consultants. He said First Reserve has long-term service agreements with the original equipment manufacturers at the power plants. Mr. Smart asked if the cash yield expectation for renewable projects is less than it would be for a gas or coal generation plant. Mr. Florian responded that it is higher. First Reserve looks at a renewable project as an asset that lasts 25 years with zero value at the end, so they structure their investments into those areas with higher returns than might be implied by their IRR target. He agreed that these are large-scale projects; for instance, their largest project has 260,000 solar panels. Mr. Lavender stated that Townsend has cited the possible retirement of Chairman Bill Macaulay as an issue and asked for comment. Mr. Koch responded that if Mr. Macaulay is not in his seat within the first 30 months from the close, the investment period would be suspended (First Reserve would stop investing) and a new plan would be presented to the advisory board. Mr. Koch added that the infrastructure team is a second strategy of First Reserve, and Townsend underwrote the first fund – they have investors in Fund I very much looking at the First Reserve platform. In this case, the individuals in place in the infrastructure plan would do very well on their own outside of the First Reserve platform.


Based on the recommendations of the Council Investment Committee, the Townsend Group and NMSIC staff, Mr. Lavender moved that the State Investment Council approve investment of $100 million in First Reserve Energy Infrastructure Fund II, L.P., subject to and contingent upon New Mexico state law, New Mexico State Investment Council policies, negotiation of final terms and conditions and completion of appropriate paperwork. Mr. Young seconded the motion. Mr. Lavender stated that the Council Investment Committee and advisory member Gene Sanger unanimously endorsed this commitment. Responding to Vice Chair Frank, Ms. Ellsworth said First Reserve would make their valuations available to the NMSIC for review. She said there are no preexisting investments in Fund II. The motion passed unanimously by voice vote. c. Vote: Real Return Asset Allocation Study (Smith & Geraldine Barlow) Marcia Beard and Matthias Bauer of RV Kuhns were also present for this item. Mr. Smith presented a background report. Mr. Smith stated that RVK developed return risk and correlation assumptions for each of the underlying asset classes and then ran them through the optimizer with some appropriate constraints to develop an efficient frontier. From that, two efficient portfolios (proposed portfolios #1 and #2) have been selected for NMSIC review. Mr. Smith commented that the process followed was somewhat more sophisticated than that followed with the initial allocation study done in 2011 and likely builds a more effective portfolio. Ms. Barlow reviewed a comparison of the current model allocations to the actual SIC portfolio. The comparison chart noted that the Real Assets portfolio is in the build-up stage and so there are differences between the current drawn value of those asset classes versus the commitment. NMSIC members discussed the two proposed portfolios. Proposed percentages for portfolio #2:

• Emerging Markets Debt (Local): 10 • TIPS: 5 • Bank Loans: 10 • Infrastructure: 15 • Timber: 25 • Energy: 25 • Agriculture: 10

Total: 100 percent

• Expected Return: 7.99 • Risk (Standard Deviation): 11.76

Ms. Barlow said NMSIC staff recommends proposed portfolio #2 for the following reasons:

• Maximizes exposure to the less liquid assets, increasing access to the illiquidity premium;


• Captures an expected rate of return nearer to that of U.S. and international equities. This will be important later in the asset allocation process for LGPF and STPF as it will reduce the pressure on the allocation model to allocate to stocks for their higher returns;

• Sits closer to the constrained efficient frontier; • It has a stronger relationship to inflation than proposed portfolio #1 and this measure is

consistent with a number of the other model portfolios; and • Is executable from a practical perspective over the short to medium term (next 18-24

months). Mr. Lavender stated that portfolio #2 was unanimously approved by all of those present at the Council Investment Committee meeting of April 10. He commended Mr. Smith, Ms. Barlow and RVK for an excellent report and presentation. Based on the recommendations of the Council Investment Committee and SIC staff, Mr. Lavender moved that the State Investment Council approve proposed portfolio #2, as reviewed and discussed by the Council today. Mr. Rawson seconded the motion, which passed unanimously by voice vote.

3. OTHER INVESTMENT MATTERS: INVESTMENT PERFORMANCE, MARKET UPDATES & PRIVATE EQUITY REPORTING a. SIC Performance Report & monthly activity summary (Smith & RV Kuhns) Mr. Smith presented the February report and preliminary numbers for the March quarter. Commenting on the Monthly Investment Summary, Mr. Smith said the economic expansion that has been in place since Q3 2009 has created complacency in the marketplace among institutional investors. He said his monthly summary lists some things the NMSIC is doing to avoid complacency. Following the Annual Investment Plan continuously and staying focused on the longer-term outlook has staff actively engaging the future in the following ways: -- Building the income component of the total rate of return, which the NMSIC has been doing for the last two years. -- Reducing exposure to publicly traded equity and traditional core fixed income investments, and thinking hard about reducing exposure to the credit cycle. This fall, staff will have a structure study on fixed income that will address reducing credit risk. -- Initiating an asset allocation study, which by policy calls for completing one every three years. While it happens to be scheduled for this year, the timing in this case is very good. Reviewing the asset mix, assumptions, return targets and financial models during a period of good times helps avoid the prospect of becoming complacent. b. LGPF & STPF Financial Model Review (Smith & Todd Frybarger) Mr. Frybarger made this presentation. Vice Chair Frank and Mr. Lavender said they felt the 1 percent real growth factor should be included in both the “Full Objectives” and “Partial Objectives” LGPF financial model. Mr. Frybarger reviewed the financial model summary of the STPF and assumptions that were used in creating the model. Mr. Smith noted that, on an inflation-adjusted basis and including 1 percent growth, the STPF needs $6.9 billion at the 50-year point. What is expected instead is $2.7 billion -- one-third of the money in inflation-adjusted dollars


that will be needed 50 years from now. He commented that the fund will likely fail to deliver in the future in the same manner as it does today. Mr. Moise noted that severance tax collections are now at about $450 million a year with only $52.1 million of that being added to the endowment. Mr. Smith stated that, had the NMSIC been successful in its request this year to the legislature to increase inflows by 12.5 percent, it would have doubled the probability of success of attaining the full objective at 50 years from 14.7 percent probability to 28.7 percent. Mr. Rawson said this begs the question of how much the NSMSIC would really need to have. Mr. Frybarger responded that it would take an estimated $140 million a year. Vice Chair Frank suggested that additional information be added to the chart so people can understand a range of probabilities. c. New Mexico Private Equity Program reporting items (informational) [No discussion.] 4. STATE INVESTMENT OFFICER’S REPORT (Steve Moise) Mr. Moise announced that Bruce Brown will become a member of the New Mexico Bar, and congratulated him. Mr. Moise congratulated Brent Shipp, who has become a Chartered Alternative Investment Analyst (CAIA). Mr. Shipp is also a CPA, CFA and a CMA (Certified Management Accountant). Mr. Moise thanked Susan Buchroeder for preparing the April CIC summary notes. Investment Matters -- Current NAV is $19.168 billion. -- Distributions over the last 12 months to the state have totaled $705.2 million. Council Matters -- May SIC and committee meetings:

a. SIC – Tuesday 5/27 at 9:00 a.m., Cabinet Room b. Audit – no May meeting c. Governance – Friday 5/16, 10:00 am, teleconference d. Investment – Thursday 5/8 at 11:00 a.m., SIC offices e. PEIAC – Thursday 5/8, 9:00 am, SIC offices

-- Legislative matters (legislative working group): a. Constitutional amendment vote 11/4 – strategy -- Steve and Charlie will be meeting with various newspaper editorial boards around the state beginning in May. In addition, the pace of speaking engagements will be stepped up, and all Council members are invited to participate with him and Mr. Wollmann at other venues; suggestions for venues are welcome. The monthly dashboard now includes information on the proposed constitutional amendment. -- The working group was in favor of again pursuing the STPF inflow increases in 2015. -- The working group is discussing updating the SIC statute, which is out of date.


Mr. Moise said the SIC Management Team has prepared the past year’s Accomplishments and Goals. b. Internal audit – IT -- The internal audit process is moving along. Further report on this later in this meeting. Office administration -- The office is still recruiting for two individuals to fill vacancies in Accounting and in IT. -- There are two new hires, Kelley Koehler (financial analyst) and Kellie Horvath (administrative assistant). Thanks to Mr. Shipp and Ms. Segell for their hard work, and particularly to Ms. Segell for her willingness over the past six months to take on duties that were not part of her job description. -- The Governance Committee will be discussing a new compensation-related matter today in closed session. -- In closed session, staff will discuss the liability coverage that the NMSIC has been pursuing for the last four years. External Relations -- Artesia Rotary, Portales Rotary and Hobbs Rotary will be hosting him and Mr. Wollmann on May 20, 21 and 22 respectively. -- Staff is very pleased that the NM Oil & Gas Association and the Independent Producers Association of NM have invited them to speak to their fall conferences regarding the constitutional amendment, and in addition telling them what the SIC is all about. -- There are delays in launching the new website. DoIT has informed NMSIC staff that a special exception authorization is needed to outsource the website. Although a letter of authorization is expected, it is possible the site may not be rolled out until July 1. 5. FINANCE MATTERS: COMMITTEE & INFORMATIONAL REPORTS: VOTE/DISCUSSION a. Audit Committee report (Peter Frank) -- The quarterly audits have been completed, and there were no exceptions. -- The committee finalized the internal audit report on manager selection. -- The internal auditor is working on portfolio monitoring, which will be heard by the committee in June. Next on the committee agenda will be a compliance audit report on IT risks. -- Bruce Brown is moving well on the compliance program, which the Audit Committee is overseeing. -- The external audit for the next three years will be put out for bid, and that process will begin in the next month or two. b. CFO report (Brent Shipp) Mr. Shipp presented budget to actual comparisons through March 31, 2014. Mr. Shipp distributed and reviewed the draft FY15 budget, which included a comparison of the FY15 appropriation request and the Executive and LFC recommendations.


6. GOVERNANCE MATTERS: COMMITTEE REPORTS: DISCUSSION a. Governance Committee Report (Scott Smart) Mr. Smart stated that the Governance Committee met last Friday. He commended the Management Team’s Accomplishments and Goals report, which also received a strong endorsement from the Governance Committee. Other highlights of the committee meeting: -- Discussed the strategic plan, with a change suggested by Ms. Eitzen that will be incorporated in the document. -- The Chair and Vice Chair will not be present at the May SIC meeting. It is typical for the Chair of the Governance Committee to step into the Vice Chair role when that occurs. This decision was made at the Governance Committee last week; if this is a problem, Council members are asked to advise him or Mr. Moise. -- The Council will be meeting on June 30 (afternoon) and July 1 (morning) instead of June 24 and July 22. Mr. Moise added that there might be committee meetings scheduled in the morning of June 30. -- Discussed the internal audit report that REDW prepared with respect to the process now followed with the selection of managers. He said REDW reviewed the process and found it to be robust and appropriate. -- REDW also recommended that Council and committee members sign a code of conduct. He said staff is looking into making revisions to the current Code. Mr. Smart said the committee briefly discussed the ongoing compliance program. Office employees and staff have signed a Code of Ethics. He asked if this will be developed further, and Mr. Land said Bruce Brown is making changes to the Code of Ethics that will go to the Governance Committee for review. -- Discussed the JPA agreements that allow other agencies within the state with at least $10 million in assets to participate in a wider range of the investment pools overseen by the NMSIC. -- Mr. Land briefed the committee on progress with D&O coverage. Vice Chair Frank suggested that the Council endorse the Accomplishments and Goals report. Mr. Land said action could not be taken at this meeting because of notification requirements, but said general consensus from the Council would be helpful. Vice Chair Frank asked if there was consensus that this document should be the guidepost for the year in evaluating performance. He commented, “I see full one hundred percent consensus.” 7. CLOSING MATTERS (Governor Martinez) a. Old or new business None. b. Next SIC meeting date: Tuesday, May 27, 9am, Santa Fe, NM 8. PUBLIC COMMENT PERIOD [Agenda was reprioritized and this item moved to follow Executive Session.] 9. VOTE TO ENTER EXECUTIVE SESSION PURSUANT TO NMSA 1978


a. 10-15-1(H)(2) Limited Personnel Matters: employee hiring and retention & compensation b. 10-15-1(H)(7) Ongoing or pending litigation: PE secondary sale; investment matters & related legal

issues Vice Chair Frank moved to enter executive session for the purposes stated on the agenda. Mr. Rawson seconded the motion, which passed on the following roll call vote: For: Ms. Eitzen; Mr. Jennings; Mr. Lavender; Mr. Rawson; Mr. Smart; Mr. Young; Vice Chair Frank. Against: None. [Council was in executive session from 11:45 until 12:10.] Vice Chair Frank affirmed that the only matters discussed in executive session were those listed on the agenda. 10. VOTE: 2015 COUNCIL BUDGET AUTHORIZATION Mr. Smart moved, based on the SIC’s existing statutory authority in Section 8, paragraph e of the General Appropriation Act of 2014 relating to non-general fund appropriation, which includes the SIC’s budget, that all SIC employees who have been employed at the State Investment Office for more than one year, including both classified and GovEx employees, receive a 3 percent increase in compensation or salary either as a raise or as a cost of living adjustment, respectively. Mr. Lavender seconded the motion, which passed unanimously by voice vote. PUBLIC COMMENT PERIOD Kay Lynde Grotbeck asked that the NMSIC “either approve or disapprove of all litigation matters.” She said public funds should be publicly recognized, and the NMSIC could approve litigation matters and settlements, etc., without revealing strategic information to the public. Mr. Jennings noted that the Attorney General has statutory authority in many such matters and so the NMSIC cannot deal with all litigation. Vice Chair Frank stated that all of the NMSIC’s litigation settlements are a matter of public record. 11. ADJOURNMENT Its business completed, the State Investment Council adjourned the meeting at 12:15 p.m. Approved: Scott Smart, Acting Vice-Chair Governance Committee Chair


Tab 2 2. Investment Matters: Investments Requiring Vote

a. Private Equity Investment Advisory Committee report (Linda Eitzen)

b. Vote: Ares Special Situations Fund IV, L.P. (Vince Smith & LP Capital)

c. Vote: Epic Ventures V, L.P. (Smith & Sun Mountain Capital)

d. Investment Committee report (Harold Lavender)

e. Vote: Brookfield Real Estate Finance Fund IV (Smith & Townsend)

f. Vote: Real Return Investment Policy update (Smith & Geraldine Barlow)

Confidential and Proprietary

Ares Special Situations Fund IV, L.P.

Investment Summary New Mexico State Investment Council

April 29, 2014

ARES SPECIAL SITUATIONS FUND IV, L.P. INVESTMENT SUMMARY

2

Organizational Overview

Ares Management (“Ares” or the “Firm”) was founded in 1997 as an affiliate of Apollo Management and became an independent firm in 2002. Ares has approximately 700 employees, including over 300 investment professionals, and is headquartered in Los Angeles, California with 14 other offices in the U.S., Europe and Asia. The Firm manages four platforms, including: Tradable Debt Group ($28 billion), Direct Lending Group ($27 billion), Private Equity Group ($10 billion), and Real Estate Group ($9 billion). The Ares Special Situations Funds are part of the Tradable Debt Group. The Tradable Debt Group manages three special situations funds including Ares Special Situations Fund I (“ASSF I”), Ares Special Situations Fund II (“ASSF II”) and Ares Special Situations Fund III (“ASSF III”) and is currently raising Ares Special Situations Fund IV (“ASSF IV”).

Strategy

The Fund will focus on dislocated and out-of-favor assets, primarily first and second-lien bank loans and high yield bonds as well as equities and other securities in reorganized entities that are trading at stressed or distressed levels.

The Fund will also opportunistically invest in collateralized loan obligation equity and debt, asset-based portfolios and non-performing loans.

Team

The Fund’s investment activities will be managed by Jeff Moore and Darryl Schall, both ASSF Portfolio Managers, and Greg Margolies, Head of Ares’ Tradable Credit Group.

The Tradable Credit Group has industry analysts who monitor over 1,000 companies and 30 industries.

The Fund will be able to utilize the resources of the Tradable Credit Group as well Ares’ other platforms.

Performance

ASSF III closed in 2010 and is focused on credit and special situations investments.

Alignment

The Fund’s terms are generally consistent with other similar funds.

Ares is an SEC-registered investment advisor under the U.S. Investment Advisers Act of 1940.

Strategic Fit

The Fund fits into the Special Situations category of the NM SIC target allocation, which has a 15% to 25% target allocation within the National Private Equity portfolio. Ares is an existing relationship for NM SIC, with commitments to ASSF I and ASSF III. This investment summary was prepared by LP Capital Advisors (“LPCA”) for the sole use of the New Mexico State Investment Council (“NM SIC”) and is subject to LPCA’s more detailed Confidential Investment Memorandum (the “Investment Memorandum”), which was previously provided to the NM SIC. As further described in the Investment Memorandum, no assurance can be given that a partnership’s investment objectives will be achieved, and past performance is no indication of future results.

Copyright © 2014 by LP Capital Advisors LLC.

Confidential – Not for Publication or Distribution

New Mexico State Investment CouncilPresentation on Ares Special Situations Fund IV

May 27, 2014

Confidential – Not for Publication or Distribution 2

DisclaimerThese materials are not an offer to sell, or the solicitation of an offer to purchase, any security, the offer and/or sale of which can only be made by definitive offering documentation. Any offer or solicitation with respect to

any securities that may be issued by any investment vehicle (each, an “Ares Fund”) managed by Ares Management LLC or any of its affiliated entities (collectively, “Ares”) will be made only by means of definitive offeringmemoranda, which will be provided to prospective investors and will contain material information that is not set forth herein, including risk factors relating to any such investment. Any such offering memoranda will

supersede these materials and any other marketing materials (in whatever form) provided by Ares to prospective investors. In addition, these materials are not an offer to sell, or the solicitation of an offer to purchasesecurities of Ares Management, L.P. (“Ares LP”), the parent of Ares Management LLC. In the United States, Ares Fund securities may be offered through our affiliate , Ares Investor Services LLC, a broker-dealer registered

with the SEC, and a member of FINRA and SIPC.

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Ares Special Situations Fund IV

Table of Contents

Executive Summary (4)

Overview of Ares Management (6)

Ares Special Situations Fund IV (8)


Executive Summary


Executive Summary

Ares Special Situations Fund IV (“SSF”) is a continuation of the successful investment strategy implemented in Ares’ three predecessor funds focused on global distressed debt and special situations

• Fourth global special situations fund

• Lead Portfolio Managers have over 25 years of industry experience which cover numerous distressed cycles

• Funds 1 – 3 have generated a gross IRR of 20.6% (2.0x MIC) and a net IRR of 16.1% (1.7x MIC) (1)

Expertise

• Capitalize on current themes: new regulation driving banks to shed assets and developing corporate credit bubble

• Investment in stressed and distressed opportunities including:

• Corporate debt instruments

• Rescue-capital opportunities

• Specialty finance opportunities

Strategy

• Robust sourcing model: Cross-sourcing from the $74 billion Ares Platform (2)

• Proprietary insight: Differentiated market intelligence and research using insights exchanged among the 310 Investment Professionals

• Experience: Comprehensive multi-asset experience and ability to evaluate broad range of investment opportunities by the dedicated and experienced SSF Team

Competitive Edge

Ares’ experienced and tenured SSF Team has a demonstrated track record of identifying attractive

relative value opportunities through multiple market cycles and across various geographies

• Corporate and consumer asset backed investments

• Post-reorganization securities

• Non-performing portfolios

Note: Past performance is not indicative of future results. Funds presented on this slide are closed to new investors.1. Performance through March 31, 2014.2. Ares Management, L.P. is the parent to several registered investment advisers, including Ares Management LLC. AUM refers to the assets of the funds, alternative asset companies and other entities and accounts that

are managed or co-managed by Ares. It also includes funds managed by Ivy Hill Asset Management, L.P., a wholly owned portfolio company of ARCC, and a registered investment adviser. It includes drawn and undrawn amounts, including certain amounts that are subject to regulatory leverage restrictions and/or borrowing base restrictions. AUM amounts are as of December 31, 2013 and are unaudited. Certain amounts are preliminary and remain subject to change, and differences may arise due to rounding.


Overview of Ares Management


Ares Management Overview

• Ares Management, L.P. (“Ares”) is a publicly traded, leading global alternative asset manager with approximately $74

billion of assets under management(1)

◦ Since our inception in 1997, we have adhered to a disciplined investment philosophy that focuses on delivering compelling

risk-adjusted investment returns throughout market cycles

• We have four distinct but complementary investment groups that have the ability to invest across the capital structure

◦ We believe each group is a market leader that has demonstrated a consistent investment track record

Tradable Credit Direct Lending Private Equity Real Estate

A leading participant in the

tradable, non-investment grade

corporate credit markets

One of the largest self-originating

direct lenders to the U.S. and

European middle markets

One of the most consistent

performing private equity managers

in the U.S. with a growing

international presence

A leading participant in the real

estate private equity markets

and a growing direct lender

Assets Under

Management$28 billion $27 billion $10 billion $9 billion

StrategiesLong-Only Credit

Alternative Credit

U.S. Direct Lending

European Direct Lending

U.S. / European Flexible Capital

China Growth Capital

Real Estate Debt

Real Estate Equity

1. Ares Management, L.P. is the parent to several registered investment advisers, including Ares Management LLC. AUM refers to the assets of the funds, alternative asset companies and

other entities and accounts that are managed or co-managed by Ares. It also includes funds managed by Ivy Hill Asset Management, L.P., a wholly owned portfolio company of ARCC, and a

registered investment adviser. It includes drawn and undrawn amounts, including certain amounts that are subject to regulatory leverage restrictions and/or borrowing base restrictions.

AUM amounts are as of December 31, 2013 and are unaudited. Certain amounts are preliminary and remain subject to change, and differences may arise due to rounding.


Ares Special Situations Fund IV


Ares SSF IV Team

Lead Portfolio Managers / Investment Committee

Greg Margolies

Head of Ares Tradable Credit, Senior Partner(26 years)

• Ares Management – Senior Partner, Head of

Tradable Credit Group

• Merrill Lynch & Co.– Managing Director, Head of

Global Leveraged Finance and Capital

Commitments

• DB Capital Mezzanine Fund – Co-Head &

Managing Director

Jeff Moore

Portfolio Manager, Special Situations(33 years)

• Ares Management – Portfolio Manager,


• Lion Advisors – Senior Credit Analyst

• Executive Life Insurance Company of

California – Vice President

• Deloitte and Touche – Senior Manager

Darryl Schall

Portfolio Manager, Special Situations

(32 years)

• Ares Management – Portfolio Manager,


• Tudor Investment Corporation - Product

Manager

• Trust Company of the West - Portfolio

Manager, Director of High Yield Research

Additional Members of the Ares SSF Investment Committee

Ujjaval Desai

Head of European Tradable Credit

(19 years)

John Kissick

Co-Founder, Senior Partner

(39 years)

Tony Ressler

Co-Founder, CEO

(29 years)

David Sachs

Senior Partner

(33 years)

Additional Members of the Ares SSF Team

Keith Ashton

Portfolio Manager, U.S.

(15 years)

Ujjaval Desai

Portfolio Manager,

Europe

(19 years)

Jeffrey Kramer

Portfolio Manager, U.S.

(27 years)

Pietro Stella

Portfolio Manager,

Europe

(17 years)

Charles Arduini

Senior Analyst, U.S.

(15 years)

Alan Hart

Senior Analyst, Europe

(11 years)

Vincent Salerno


(16 years)

Matthew Sheahan


(16 years)

Benjamin Tyszka


(12 years)

Tim Zeiger

Senior Analyst, Europe

(12 years)

Steve Kim

Analyst, U.S.

(13 years)

Ian Smith

Trader

(12 years)

The SSF team has experience managing both performing and distressed credit and have expertise in restructurings, bankruptcy financings, portfolio purchases and asset-backed investing

Leverage Support of Investment Professionals from both the Tradable Credit Group (44 additional professionals) & Broader Ares Platform

Note: As of March 31, 2014. Years referenced represents number of years of relevant experience.


Global Trading Team

Laura Rogers

19 years

Head Trader

Evan Cascio

12 years

Trader

Tracy Mancuso

18 years

Trader

Ian Smith

12 years

Trader

Kevin Terzic

10 years

Euro Trader

Jason Edwards

8 years

Trading Assistant

Victoria Tunberg

8 years

Trading Assistant

Portfolio Management

Keith Ashton

Asset Backed Investments

15 years

Seth Brufsky

Multi-Strategy Credit,

Senior Partner

24 years

Americo Cascella

U.S. Credit

20 years

Ujjaval Desai

Head of Europe Tradable

Credit

19 years

John Eanes

U.S. Credit

10 years

François Gauvin

Euro Credit

22 years

Jeffrey Kramer

U.S. Asset Backed

Investments

27 years

John Leupp

U.S. Credit

25 years

Greg Margolies

Head of Ares Tradable

Credit, Senior Partner

26 years

Jeff Moore

Special Situations

33 years

David Sachs

Senior Partner

33 years

Darryl Schall

Multi-Strategy Credit &

Special Situations

32 years

Pietro Stella

Euro Asset Backed

Investments

17 years

Deep & Experienced Team

Note: As of May 2014. Years referenced represents number of years of relevant experience.

U.S. Tradable Credit

Andrea Cullen

Director of Research

14 years

Consumer Products,

Food/Beverage, Retail

Jennifer Kozicki

Chief Operating

Officer, TCG

17 years

Shane Mengel

Client Portfolio

Manager, TCG

19 years

Russell Almeida

Senior Analyst

10 years

Homebuilding, Bldg.

Products, Industrial,

Manufacturing, Services

Charles Arduini

Senior Analyst

15 years

Asset Backed

Investments

Ben Bonsall

Senior Analyst

9 years

Chemicals, Midstream /

Propane / Refining

Zhen Guo

Senior Analyst

8 years

Asset Backed

Investments

Brad Hill

Senior Analyst

9 years

Supermarkets,

Cable/Satellite,

Broadcasting

Sung Hong

Senior Analyst

13 years

Financials, Telecom

Mike Huddleston

Senior Analyst

12 years

Energy, Paper /

Packaging

Chris Mathewson

Senior Analyst

10 years

Printing / Publishing,

Diversified Media,

Technology,

Metals/Mining

Samantha Milner

Senior Analyst

14 years

Aerospace/Defense,

Automotive,

Transportation,

Equipment Rental

Jeff Moore

Senior Analyst

33 years

Healthcare (Acute

and Non-Acute)

Jennifer Pullen

Senior Analyst

13 years

Technology (Software),

Utilities

Vincent Salerno

Senior Analyst

16 years

Asset Backed

Investments

Matthew Sheahan

Senior Analyst

16 years

Distressed / Special

Situations

Benjamin Tyszka

Senior Analyst

12 years

Asset Backed

Investments

Howard Wang

Senior Analyst

17 years

Gaming, Restaurants, Media

Content, Lodging/Leisure

11 Junior Analysts

Averaging 8 years of experience

Business Development / Investor Relations

45 Professionals

We believe our experience and deep industry expertise is a source of competitive advantage

Europe Tradable Credit

Nilesh Desai

Senior Analyst

15 years

Consumer, Food/Beverage,

Restaurants & Food

Service, Retail,

Supermarkets

Alan Hart

Senior Analyst

11 years

Asset Backed

Investments

Graham Martin

Senior Analyst

25 years

Aerospace/Defense,

Autos, Equipment

Rental, Financials,

Gaming /Lodging,

Home Building & RE,

Paper & Packaging,

Transportation

Nicolo Perari

Senior Analyst

13 years

Broadcasting, Cable &

Satellite, Diversified

Media, Healthcare, Print &

Publishing,

Technology/Software,

Telecom

David Wood

Senior Analyst

15 years

Chemicals, Energy,

Industrials, Metals &

Mining, Oil & Gas,

Services, Utilities

Tim Zeiger

Senior Analyst

12 years

Asset Backed

Investments

5 Junior Analysts

Averaging 7 years of experience


The Ares Platform is Critical for Sourcing

Tradable Credit

Ares SSF Investment Team selects investment ideas

after a thorough due-diligence process

Direct Lending Private Equity Real Estate

Robust sourcing model and origination capabilities using the Ares Platform

Ares Investment Groups

Leveraging investment ideas sourced by ~310 investment professionals across over 15 cities globally

• 500+ direct institutional

relationships

• Coverage of over 1,000

companies across 30+

industries

• Local direct origination

capacity

• Active dialogue with

sponsors, capital

providers and local joint

venture partners

• Ongoing discussions

with top financial

institutions

• Access to broader

banking and capital

market relationships

• Enhanced access to deal

flow through tenured

team in local markets

• ~1,300 transactions or

~$50 billion in

investments reviewed

annually

Note: As of December 31, 2013.

Confidential – Not for Publication or Distribution

EPIC VENTURE FUND V

FILLING THE GAP BETWEEN STRUCTURALLY RESTRICTED VENTURE FIRMS AND THE

LIMITED CAPITAL OF ANGELS

1

O P A L F I N A N C I A L G R O U P E M E R G I N G M A N A G E R O F T H E YE A R 2 0 0 9

EPIC FUND V SUMMARY

2

EPIC FUNDS THE GAP

WE FOCUS ON ROUNDS BETWEEN ANGELS AND

LATER STAGE VCS

EPIC FOCUSES ON TECH

CLOUD, STORAGE, SECURITY, MOBILE,

MEDIA & ENTERTAINMENT

EPIC LEADS THE REGION

WE SEE ALL EARLY-STAGE DEALS IN THE

MOUNTAIN STATES

EPIC GETS EXITS

TRACK RECORD OF SUCCESSFUL INVESTING

OVER MUTIPLE FUNDS

EPIC MANAGING DIRECTORS

3

NICK EFSTRATIS Managing Director

Bus Dev., Excite.com Bus Dev., NetDocuments CCO, MACC

Founding Team, NetDocuments Co-Founder, RanchLife Adventures Co-Founder, EPIC Ventures

Wasatch Venture Fund / EPIC Ventures and MACC (15 Years Inv. Exp.)

BS, BYU MBA, BYU

KENT MADSEN Managing Director

CEO, MACC Prod Dev. new vehicle ventures, China, Ford Advanced Research, Ford

CEO, MACC Private Equities Co-Founder, EPIC Ventures

Wasatch Venture Fund / EPIC Ventures and MACC (17 Years Inv. Exp.)

MA and BS, Penn MSE, Michigan MBA, Wharton

CHRIS STONE Managing Director

CEO, Streamserve Vice Chairman / Office of CEO, EVP, Novell Director Software Dev., Data General

CEO, SiCortex Co-Founder, Tilion Founder / CEO, Object Management Group

Novell Ventures Wasatch Venture Fund / EPIC Ventures (16 Years Inv. Exp.)

BS, Univ. of NH AMP/MBA, Harvard

OPERATING

ENTREPRENEURIAL

FINANCIAL

EDUCATION

INVESTMENTS

NEW MEXICO TECH STARTUP ECOSYSTEM

Katie represents EPIC within NM’s startup community President, board member – connecting NM entrepreneurs with investors Board member, selection committee - bringing a startup accelerator to Abq ABQ STARTUP WEEKEND Judge - empowering entrepreneurs to launch successful ventures Venture Acceleration Fund (VAF) Review committee member – non-dilutive seed capital to startups in Northern NM Board member – providing resources, training and expertise for entrepreneurs in NM

Other involvement includes: NM Venture Capital Association, UNM (Biz plan competition judge, guest speaker, advisor to STC Venture Lab, TVC (advisor, workshops, speaker), InnovateAbq

EPIC VENTURES IN NEW MEXICO

4

KATIE SZCZEPANIAK RICE

14 yrs experience in strategy, engineering, consulting, startups, and venture capital

Based in NM since 2004 Deep network within technology and entrepreneurial community Albuquerque Top 40 Under 40, 2013

EXPERIENCE

EDUCATION

NEW MEXICO

BS, MIT MBA, University of Chicago

EPIC ADVISORY BOARD

5

JIM SORENSON CEO, Sorenson Companies (EPIC Co-investor)

LARRY AUGUSTIN Founder, VA Linux (VA Software); CEO,

SugarCRM

ROB RYAN Founder & former CEO, Ascend Communications (IPO, Lucent Bought for $23 Billion); Advisor and

Board Member, RightNow (Oracle)

RAY BINGHAM MD, General Atlantic Partners; Board Member,

Oracle

PAUL CORMIER President of Products and Strategy, Red Hat

SHANE ROBISON CEO, Fusion IO; Former EVP and Chief Strategy

and Technology Officer, Hewlett Packard

HENRY EYRING EVP, Brigham Young University; Former Partner,

Monitor

DEREK SMITH Founder and former CEO, Oakley Networks

(Raytheon); Sr. Advisor, Cyber Policy Office of Secretary of Defense

TAYLOR RANDALL Dean, University of Utah Business School

EPIC Ventures V, LP 1

EPIC VENTURES V, LP Investment Analysis Summary May 27, 2014

EPIC Ventures (“Epic” or the “Firm”) is raising EPIC Ventures V, LP (“Fund V” or the “Fund”), a $75 million early stage venture capital fund. The Fund will continue the Firm’s approach of investing in the Intermountain West region and specifically in New Mexico. Team Fund V will be lead by the same team that lead EPIC Ventures IV (“Fund IV”), consisting of Nick Efstratis, Kent Madsen and Chris Stone (the “Managing Directors”). The Managing Directors are supported by three senior level investment professionals, a Chief Financial Officer and a team of analysts. Katie Rice is EPIC's New Mexico-based investment professional and is based in Albuquerque. In addition to the investment team, the Fund is supported by an advisory board comprised of senior leaders in the technology industry. Strategy EPIC is targeting $75 million of capital commitments to be deployed across a number of investments in early stage companies. The Fund’s strategy is focused on technology in the mobile, cloud computing, data and security, media and entertainment and IT sectors. Sun Mountain Capital believes that there are several key factors that will determine the effectiveness of the strategy:

• Focus on sectors aligned with the Managing Directors’ experience and domain expertise • Investing at a stage where the Managing Directors can add value to the company • Identifying opportunities that are overlooked by national VC firms

Fit With New Mexico EPIC has been actively investing in New Mexico for over a decade. Out of the three prior funds which have received an investment from the New Mexico State Investment Council, EPIC has invested in nine New Mexico-based companies. The EPIC team includes a very active investment professional located in Albuquerque, Katie Szczepaniak Rice. Fit With the New Mexico Private Equity Investment Program Pacing Plan The recommendation to invest in Fund V is consistent with the New Mexico State Investment Council’s pacing and allocation plan for the New Mexico Private Equity Investment Program, as determined by the Council in February 2014.

EPIC Ventures V, LP 2

This document is intended for the sole use of the New Mexico State Investment Council (“NMSIC”) and summarizes aspects of Sun Mountain Capital's in-depth Investment Analysis Report, which was previously provided to the NMSIC. Note that an investment in the Fund is risky, and there can be no assurances that the Fund's investment objectives will be achieved or that its investment program will be successful. In considering any performance data contained herein, investors should bear in mind that past performance is not indicative of future results.

THE

TOWNSEND

GROUP

RECOMMENDATION TO INVEST IN BROOKFIELD REAL ESTATE FINANCE FUND IV

TO: New Mexico State Investment Council FROM: The Townsend Group DATE: May 27, 2014 RE: Recommendation to commit $75 million to Brookfield Real Estate Finance Fund IV

SUMMARY RECOMMENDATION The Townsend Group (Townsend) recommends a commitment of $75 million to Brookfield Real Estate Finance Fund IV (BREF IV) for the New Mexico State Investment Council’s (NMSIC) credit portfolio within the non-core tactical real estate portfolio. BREF IV is targeting an $850 million closed-end real estate investment vehicle sponsored by Brookfield Asset Management (BAM). The Fund strategy includes new loan origination focused on higher yielding loans to commercial real estate borrowers for acquisitions and refinancing targeting all property types across the US. Consistent with NMSIC’s 2014 Real Estate Investment Plan objectives, BREF IV provides NMSIC exposure to a manager with experience originating and executing debt investments in the core and value add real estate space. This recommendation to invest in BREF IV has been vetted with NMSIC Staff and meets the following portfolio and performance objectives: 1. Addresses NMSIC’s 10% real estate target allocation, diversifying vintage year exposure within core

strategic and non-core tactical sectors;

2. Will increase the overall cash yield of the real estate portfolio and should reduce overall volatility given the returns are not linked to valuations;

3. Addresses the need for non-core tactical investments within the portfolio based upon an over-commitment to non-core tactical strategies within an acceptable range to reach the target exposure;

4. Provides a net return target which is expected to exceed that of NMSIC’s benchmark NFI-ODCE.

2

BREF IV SUMMARY (SEE ATTACHMENT A FOR THE FULL INVESTMENT REVIEW) Strategy

BREF IV is a US commercial real estate mezzanine lending vehicle. The Fund’s primary strategy is to originate higher yielding US commercial real estate debt targeting a low double digit unlevered IRR, primarily in the form of current income. Additional details of the Fund’s strategy are listed below.

On average, the debt investments will be subordinate to a third-party first mortgage lender; with BREF IV providing sub-debt in the form of a mezzanine loan subject to an inter-creditor agreement.

Loans will predominantly be structured with LIBOR-based floating rate current pay coupons.

On average, BREF IV capital will represent 60-80% of the underlying property appraised value upon origination.

The portfolio will target office, retail, multifamily, industrial, hospitality, and other property types.

BREF IV will generally target individual investments in prime locations within larger Metropolitan Statistical Areas (MSAs).

The Fund will utilize a small amount of fund-level leverage.

Returns will comprise coupon payments and fees paid by the borrower with underwriting assuming repayment at maturity.

Though Brookfield will typically hold investments to their respective maturity, this is an active strategy, given ongoing monitoring, as the Fund may sell certain investments prior to maturity if they believe value would be maximized at a specific time, rather than passively holding these assets until maturity.

Comparative Advantages / Issues and Concerns

The primary advantages of BREF IV are:

Strong sponsor;

Sponsor alignment;

Historical performance; and

Attractive investment characteristics. Although Townsend believes BREF IV represents an attractive investment opportunity for NMSIC, the following concerns should be considered prior to making this investment:

Trending market;

Large fund size;

Long fund term;

Lenient leverage permissibility; and Key person risk.

Alternatives Considered

Townsend and NMSIC Staff reviewed all relevant institutional competitors of BREF IV available in the market.

3

NMSIC REAL ESTATE PORTFOLIO ANALYSIS WITH BREF IV The pacing model for NMSIC’s 2014 Real Estate Investment Plan calls for approximately $158 million in new non-core tactical commitments in 2014 to maintain appropriate exposure to the Real Estate Investment Policy investment targets. The proposed $75 million commitment to BREF IV is in compliance with each of the main parameters established by NMSIC’s approved Real Estate Investment Policy outlined below. Target Allocations for the Overall Real Estate Portfolio, and to Core and Non-Core Assets

NMSIC’s target allocation to real estate is currently 8%. This allocation was approved by the State Investment Council at its August 28, 2012 meeting along with the plan to continue incrementally increasing the real estate allocation to 10% of NMSIC total plan assets. As of December 31, 2013, on a funded basis, real estate exposure is approximately 6.1% of total fund assets. Inclusive of all existing unfunded commitments expected to be drawn and accounting for the proposed $75 million commitment to BREF IV, NMSIC’s real estate exposure would be approximately 9.5%. Real estate commitments continue to be recommended to maintain the targeted 10% funded real estate allocation to account for distributions per the pacing model. The Real Estate Investment Policy also establishes risk management policies for the total portfolio, including ranges and targets for real estate investment strategies as presented in Exhibit 1 below.

Exhibit 1. NMSIC Real Estate Portfolio Sub-Allocations

Type Range

Core: Strategic 40%-70%

Non-Core: Tactical 30%-60%

Public Real Estate Investment Trusts 0%-10%

As of December 31, 2013, NMSIC’s portfolio had an approximate 44% sub-allocation to non-core tactical investments (based on market value). With no REIT investments, the portfolio had an approximate 56% sub-allocation to core. While these allocations are below and above the current targets for non-core and core, respectively, they are well within the established policy ranges. When including existing unfunded commitments expected to be called and the recommended $75 million investment to BREF IV, NMSIC’s non-core tactical portfolio exposure increases to approximately 55%. It is important to note that the increase to 55% non-core tactical exposure assumes unfunded balances are called immediately. Given the closed-end nature of the non-core portfolio, commitments are called over two to four year investment periods while capital is expected to be returned from existing investments. Also it is expected that approximately $200 million will be returned from exits relating to NMSIC’s portfolio over the next 12-24 months which represents approximately 18% of the portfolio’s 4Q13 market value. Exhibit 2 shows the result of adding the BREF IV investment at both the 8% current interim target and the ultimate 10% target real estate allocation. The non-core tactical investments drive the over-commitment for the total portfolio in the range of approximately 1.2x, which is within Townsend’s recommended range and is accounted for in Townsend’s pacing model for NMSIC’s portfolio. Townsend recommends that investors over-commit to non-core tactical strategies within an acceptable range to reach the target exposure as closed-end funds do not provide investors with sustained market exposure equal to the amount of the funds’ respective commitments.

4

Exhibit 2. NMSIC’s Real Estate Portfolio Status Relative to Target Allocations Including Proposed BREF IV At the 8% current interim target, the portfolio is over-committed to the non-core tactical sub-allocation by approximately $300 million, while at the 10% target, the non-core tactical real estate allocation is over-committed by approximately $135 million—the allocations at both interim targets are within policy ranges and represent acceptable over-commitment multiples. As previously mentioned NMSIC expects to have approximately $200m of capital returned from its legacy tactical portfolio over the next 12-24 months so over a broader horizon NMSIC is still conservative on its over-commitment to tactical.

Investment Objectives

The stated return objective for NMSIC’s real estate portfolio is to outperform the NFI-ODCE index on a net of fees basis over rolling five-year periods. BREF IV’s target net return is supportive of this objective as it is expected to exceed that of the NFI-ODCE. Commitment Size

NMSIC’s policy with respect to investment size limitations states that the amount of equity that may be invested in a single investment is limited to no more than 25% of the total real estate allocation determined at the time of the initial investment. According to NMSIC’s investment policy, a single investment is defined as any single stand-alone investment made or any single investment within a commingled investment vehicle. The proposed $75 million commitment to BREF IV is in compliance with the stated investment size constraint. Diversification Analysis

NMSIC does not have a target diversification constraint for sectors or regions but seeks to be prudently diversified as part of the portfolio’s overall risk management efforts. While the policy permits a significant amount of flexibility with respect to property type diversification (+/- 15% of NFI-ODCE weight), NMSIC should only take measured risk when warranted. Exhibit 3 displays NMSIC’s property type and geographic diversification versus the NFI-ODCE before and after an investment in BREF IV.1 The portfolio remains underweight most property types due to the exposure to “other”, given that the

1 Source: Diversification charts calculated by The Townsend Group based on NMSIC’s 4Q13 diversification, including all new commitments and the proposed $75 million BREF IV commitment.

Funded NAV Funded

NAV

Unfunded Unfunded

Remaining Allocation


-400,000,000

-200,000,000

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

Strategic Portfolio (Core)

Tactical Portfolio (Non-Core)

Sub-Portfolio Snapshot estimated as of 12.31.13*8% Target Allocation

*Unfunded includes all new commitments and projected $75 million to BREF IV

Funded NAV Funded

NAV

Unfunded Unfunded


Remaining Allocation-200,000,000

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

1,200,000,000

Strategic Portfolio(Core)

Tactical Portfolio(Non-Core)

Sub-Portfolio Snapshot estimated as of 12.31.13*10% Target Allocation

*Unfunded includes all new commitments and projected $75 million to BREF IV

5

NFI-ODCE consists primarily of the five primary property types. Assets in the “other” property type category include: self-storage, land, recreational vehicle investments, golf course, and mixed use. Many of these vehicles/ strategies represent the key focus for exits and disposals over the next 12-24 months. It should be mentioned that while NMSIC’s index is the ODCE, it can still seek to outperform the ODCE by investing outside the ODCE parameters. A good example of this is that the ODCE has no international exposure, yet a properly structured real estate portfolio should consider diversifying by country. Exhibit 3. NMSIC Total Real Estate Portfolio: Current and Projected Diversification (BREF IV)

*Other comprises alternative property types (e.g. storage, senior housing, medical, etc.).

*Other comprises alternative property types (e.g. storage, senior housing, medical, etc.).

Manager Concentration Evaluation

NMSIC has a maximum manager exposure limit of 35%. NMSIC currently has real asset exposure to Brookfield through three prior commitments, a $100 million commitment to Brookfield Infrastructure Fund II, a $100 million commitment to Brookfield Timberlands Fund V and a $24.8 million commitment to Brookfield Capital Partners III. Based on commitment amounts, the proposed $75 million commitment to BREF IV will result in Brookfield manager exposure of approximately 10.5% in NMSIC’s real estate and real assets portfolio and approximately 1.7% of total plan assets.

23

.4 26

.5

11

.3

15

.6

4.8

13

.7

23

.0 25

.4

12

.3 15

.7

5.5

13

.7

25

.5

36

.3

14

.8 18

.6

2.1 2.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Apartment Office Industrial Retail Hotel Other*

Property Type Diversification (%)

NMSIC - Current NMSIC - Projected NFI-ODCE

18

.7

8.4

4.9

3.4

10

.2

9.0

4.8

20

.5

11

.1

19

.6

8.7

4.7

3.2

9.9

8.6

5.0

20

.9

10

.6

21

.4

12

.6

7.5

1.6

8.6 1

0.2

5.0

33

.1

0.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

NE ME ENC WNC SE SW MTN Pacific Ex-US

Geographic Diversification (%)

NMSIC - Current NMSIC - Projected NFI-ODCE

6

Leverage Evaluation

Per NMSIC’s leverage policy, the non-core tactical portfolio has a maximum loan-to-value (LTV) limitation of 75%. As of 4Q13, the non-core tactical portfolio’s weighted average leverage was approximately 48%. When including unfunded capital as of 4Q13, the non-core tactical portfolio’s expected leverage is approximately 55%. Inclusive of all commitments to date and utilizing the maximum allowable leverage for BREF IV, the resulting NMSIC non-core tactical portfolio’s expected leverage would be approximately 53% which remains compliant with the respective policy. Additionally, as mentioned, this is considered an active strategy in which continual monitoring will take place with regards to investment status, performance, and leverage. Based upon historic leverage usage it is expected that Brookfield will continue prudent and asset specific use of leverage in Fund IV. Placement Agents

According to its submission for compliance with the Transparency and Disclosure (T&D) Policy and as discussed with Staff and the Townsend Group, Brookfield was not represented in any capacity by a third party sales agent in connection with this potential investment. NMSIC’s General Counsel has approved Brookfield’s T&D submission which will be posted to the NMSIC website, following approval of the investment by the Council Investment Committee and full State Investment Council, if so approved, for the required amount of time prior to execution of the subscription documents. Disclaimer: This is a public version of the investment recommendation cover memo. Portions of the original document have been removed for confidentiality purposes.

Brookfield Asset Management Inc. A Global Alternative Asset Management Company Focused on Real Estate, Renewable Power, Infrastructure and Private Equity

Presentation to the New Mexico State Investment Council

May 2014

Brookfield Real Estate Finance Fund IV

Please see Notice to Recipients on slide 12 For Institutional and Qualified Investor Use Only

2

© Brookfield Asset Management Inc.

Executive Summary – Brookfield Real Estate Finance Fund IV

Brookfield Real Estate Finance Fund IV is a continuation of the same real estate debt strategy that Brookfield has successfully executed throughout the past decade

OFFERING • Brookfield Asset Management (together with its affiliates, “Brookfield”) is raising a commercial real estate debt fund to invest primarily in the U.S. (“BREF IV” or the “Fund”)

• BREF IV will be Brookfield’s primary private U.S. commercial real estate debt vehicle

STRATEGY • Lend against high-quality properties in strategic locations

• Invest in real estate finance related transactions in a risk position senior to traditional equity and subordinate to traditional first mortgages

• Employ an aggressive and proactive approach to asset management

BROOKFIELD ADVANTAGE

• Brookfield is one of the largest property investors and operators worldwide

• BREF IV will be managed by the same team that has been active and successfully investing with a similar strategy since 2002

3


The Brookfield Advantage

EXPERIENCED MANAGEMENT

• Senior members of Brookfield Real Estate Financial Partners (“BREF Partners”) have on average over 20 years experience and have successfully invested similar strategies at Brookfield since 2002

• Extensive relationships with borrowers, brokers and financing sources

COORDINATED ORGANIZATION

• Affiliation with major industry leading real estate owner and operator provides access to real time market data and property management expertise

• Ability to make decisions quickly – disciplined and systematic credit assessment and due diligence process

• The Fund will utilize combined resources of BREF Partners and Brookfield to pursue real estate transactions to create unique opportunities

FOCUS ON CAPITAL PRESERVATION

• Lending against high-quality property assets at a valuation below intrinsic value

• Performs thorough due diligence on all potential investments

• Utilizes conservative levels of leverage across all market cycles

ALIGNMENT OF INTEREST

• Brookfield invests significant amounts of capital alongside investors as true partners

• Senior management control and own a significant percentage of Brookfield

4


BREF IV Investment Strategy

STRATEGY

• Real estate quality is a primary driver of investment decision

• Utilize BREF Partners’ unique combination of real estate and finance expertise to invest in real estate debt instruments

INVESTMENT APPROACH

• Target the 60% to 80% loan-to-value tranche to allow for high current returns while still benefiting from an equity cushion

• Each investment requires an in-depth understanding of the underlying real estate on a case-by-case, market specific basis

• Investment success benefits from, but is not dependent on, a macro improvement in real estate prices

• Leverage experience owning and operating properties to maximize return in a default situation

GEOGRAPHY

• Targeting high-quality properties in strategic locations

• Focus on investments in the U.S.

INTEGRATED TEAM

• Fully vertically integrated team includes origination, underwriting, closing, asset management and financial reporting functions

• Senior management has extensive experience investing through multiple market cycles

5


Targeted Investment Types

BREF Partners anticipates the Fund will:

• Originate whole loans and sell or syndicate senior positions to third parties

• Originate subordinate loans jointly with senior lenders

• Originate mezzanine loans or preferred equity that is subordinate to existing long term senior debt

• Provide capital to recapitalize transactions – provide funds to pay TI/LC(1) costs, reduce senior debt

• Purchase newly originated subordinate debt

In summary, BREF Partners takes an active approach to origination where it seeks to maximize its rights and create value

The Fund will target investments in real estate finance transactions in a risk position senior to traditional equity and subordinate to traditional first mortgages or investment-grade corporate debt on predominantly transitional properties

1) Tenant Improvements and Leasing Commissions.

6


Brookfield Asset Management

• 100 year history of owning and operating assets with a focus on property, renewable power, infrastructure and private equity

• Disciplined investment approach is focused on value-oriented acquisitions, operational value-add and capital preservation to deliver attractive risk-adjusted returns

• Experienced team of ~700 investment professionals

• Global reach with local presence in key markets, including New York, Toronto, São Paulo, London, Sydney, Hong Kong, Mumbai and Dubai

• Brookfield is publicly listed on the New York and Toronto stock exchanges under the symbols BAM, BAM.A, respectively and on the NYSE Euronext under the symbol BAMA

Brookfield Asset Management is a global investor, operator and asset manager of high-quality real assets with over $175 billion of assets

Property

Brookfield Asset Management

Private Equity Infrastructure Renewable Power

7


The Brookfield Advantage in Action

Brookfield’s established sector-specific property platforms offer BREF Partners access to real time market data

Note: Represents a sample of Brookfield operating companies and affiliates as of December 31, 2013. 1) Includes assets held through our approximate 22% interest in Canary Wharf Group plc (“Canary Wharf”).

HOTEL & OTHER ~$5.0 BILLION

~8 Hotels with 7,500 Rooms

OFFICE ~$41.6 BILLION

1751 Properties

~ 100 million sq. ft.

Development Potential ~30 million sq. ft.

MULTIFAMILY ~$7.4 BILLION

25,500 Apartments Owned

~53,000 Apartments Managed

RETAIL ~$48.4 BILLION

1721 Regional Malls

~153 million sq. ft.

$2.0B Re-development Pipeline

INDUSTRIAL ~$3.5 BILLION

236 Industrial Properties ~68 million sq. ft.

Development Potential ~79 million sq. ft.

Brookfield Property Group

$105 Billion1

8


Target Property Types

40%

40%

10%

10%

BREF IV will target investments with underlying exposure to sectors in which Brookfield has significant experience

Office

Retail, Multifamily & Industrial

Hospitality

Other

BREF IV Target Sector Allocation(1)

1) Indicative target allocation for BREF IV. There can be no guarantee that diversification or asset allocations will be met or that the Fund will be able to implement its investment strategy or achieve its instrument objectives.

9


Current Market Opportunity

• Increased maturities are creating opportunity for the Fund to provide “gap capital”

• Supply / demand imbalance should create a robust lending environment

• Improving CRE fundamentals, especially in major markets, are boosting transaction volumes &

performance

• Macro-economic conditions remain favorable to lenders

Brookfield believes continued market dislocation, slow growth in the U.S., low inflation and improving real estate fundamentals are creating a compelling market opportunity

10


Conclusion

Brookfield believes BREF IV is a compelling and timely investment opportunity for Limited Partners

Industry-leading Real Estate

Owner / Operator

• Experienced investment team with extensive relationships

• Enhance due diligence from an owner’s perspective

• Active & aggressive asset management, including the ability to own/operate foreclosed assets

• Compelling combination of real estate & finance expertise

Proven Investment

Strategy

• Lending at what Brookfield believes to be below intrinsic value, (60% to 80%) of capital structure

• Focusing on control positions

• Leveraging Brookfield platform through investment cycle

• Demonstrated track record of innovation, strong performance & current income

Opportune Time to Invest

• Significant need for debt capital

• Continued dislocation providing opportunities for non-traditional lenders

• Favorable structures and pricing

+ +

11


BREF IV Senior Investment Team Biographies

Andrea Balkan, Managing Partner Andrea is a Managing Partner of Brookfield Real Estate Financial Partners, based in New York. Andrea will be responsible for the overall management of the activities of the Fund. Andrea has over 28 years of experience in real estate finance, capital markets, investing and asset management. Prior to joining Brookfield in 2002, Andrea was a Director at Merrill Lynch in New York in the Investment Banking and Debt Capital Markets groups (1998 to 2002), where she was responsible for conduit and large loan origination business, and before that, a Managing Director at Chase Manhattan Bank where she was a member of the management team that developed Chase Manhattan Bank’s top tier CMBS business. Andrea holds a B.A. from Wesleyan University and successfully completed Chemical Bank’s credit training program in 1987. Terry Hoyt, Senior Vice President Terry is a Senior Vice President of Brookfield Real Estate Financial Partners, based in New York. Terry will be responsible for the structuring, closing and asset management of transactions included in the Fund. Terry has over 25 years of experience in closing real estate transactions, including nine years of experience in real estate finance and capital markets at Merrill Lynch and JP Morgan. Prior to joining Brookfield in 2003, Terry was at Merrill Lynch and was responsible for the closing and securitization of all large loan transactions. Terry holds a B.A. from Monmouth University. Justin Monge, Senior Vice President Justin is a Senior Vice President of Brookfield Real Estate Financial Partners, based in New York. Justin will be responsible for the investor relations and finance functions of the Fund. Justin has over 20 years of experience in real estate finance and investment. Prior to joining Brookfield in 2003, Justin was a Director at Deutsche Bank where he served as a member of the management team of DB Realty Mezzanine Investment Funds. During his nine year tenure at Deutsche Bank/Bankers Trust, he served in various capacities within the firm’s real estate investment banking, real estate private equity and asset management operations. Justin holds an A.B. from Harvard College and an M.B.A. from Columbia University Graduate School of Business. Chris Reilly, Senior Vice President Chris is a Senior Vice President of Brookfield Real Estate Financial Partners, based in New York. Chris will be responsible for the origination, underwriting, and asset management of transactions included in the Fund and has over 22 years of real estate finance and capital markets experience. Prior to joining Brookfield in 2012, Chris was a Managing Director at Natixis Real Estate Capital Markets, ran the Large Loan Group at UBS, and was an Executive Director at Morgan Stanley (2000-2006) focused on the origination and distribution of commercial real estate loans. Prior to Morgan Stanley, Chris was a Credit Analyst at Fitch Ratings (1995-2000). Chris holds a B.S. from the Stern School of Business at New York University. John Lee, Senior Vice President John is a Senior Vice President of Brookfield Real Estate Financial Partners, based in New York. John will be responsible for the underwriting and asset management of transactions included in the Fund and has over 20 years of experience in real estate finance and portfolio management. Prior to joining Brookfield in 2008, John was at Countrywide in the Commercial Real Estate Group (2006-2008). Before that he was at Deutsche Bank/Bankers Trust in the DB Realty Mezzanine Group, Real Estate Portfolio Management Group and Investment Management Group (1994-2006). John holds a B.S. from St. John’s University.

12


Notice to Recipients

This document has been prepared to provide recipients with the opportunity to determine their preliminary interest regarding an investment in Brookfield Real Estate Finance Fund IV (the “Fund”) and may not be used or reproduced for any other purpose. This document does not constitute an offer to sell or a solicitation of an offer to buy securities in any jurisdiction. Any such offer will be made only by means of the Fund’s offering materials (collectively, the “Offering Materials”) and is subject to the terms and conditions contained therein. The information set forth herein does not purport to be complete. The Offering Materials contain additional information about the terms and conditions of an investment in the Fund and risk disclosures that are important to any investment decision regarding the Fund. This document is qualified in its entirety by the Offering Materials which should be read completely before a prospective investor considers making an investment in the Fund.

This document is confidential and is intended solely for the information of the person to whom it has been delivered. It may not be reproduced or transmitted, in whole or in part, to third parties except as agreed in writing by Brookfield Asset Management Inc. (“BAM” together with its affiliates, “Brookfield”). In addition, if the recipient is subject to section 552(a) of title 5 of the United States Code (commonly known as the “Freedom of Information Act”) or any other public disclosure law, rule or regulation of any governmental or non-governmental entity, it is acknowledged that the information contained herein is confidential, proprietary and a trade secret. Certain information contained herein may constitute material non-public information in respect of Brookfield Asset Management Inc. or any of its publicly-traded affiliates and may not be used to trade in securities or other financial interests on the basis of any such information.

Brookfield Private Advisors LLC, a wholly owned subsidiary of BAM, is a registered broker dealer with the SEC and a FINRA Member. Certain employees of Brookfield’s Private Funds Group may be registered with Brookfield Private Advisors LLC. None of Brookfield, its officers, employees, agents or affiliates makes any express or implied representation, warranty or undertaking with respect to this document. This document has been prepared for institutional and qualified investors only. It has not been filed with FINRA.

An investment in the Fund is speculative and involves significant risks, including loss of the entire investment. There can be no guarantees that the Fund’s investment objective will be achieved or that the investment will be successful. Interests in the Fund will be illiquid as there will be no secondary market for such interests and none is expected to develop. There will be restrictions on transferring interests in the Fund. The Fund’s investments may be leveraged and its investment performance may be volatile. An investment in the Fund is suitable only for sophisticated investors and requires the financial ability and willingness to accept the risks and lack of liquidity that are characteristic of an investment in the Fund described herein. Any references to “committed capital” include all pledged commitments.

Except where otherwise indicated herein, the information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing or changes occurring after the date hereof.

Certain information contained in this presentation constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of the Fund may differ materially from those reflected or contemplated in such forward-looking statements. Although Brookfield believes that the anticipated future results, performance or achievements for the Fund expressed or implied by the forward-looking statements and information are based upon reasonable assumptions and expectations, the reader should not place undue reliance on forward-looking statements and information because they involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements and information. Factors that could cause actual results to differ materially from those set forward in the forward-looking statements or information include but are not limited to: general economic conditions; changes in interest and exchange rates; availability of equity and debt financing and risks particular to underlying portfolio company investments.

In considering investment performance information contained herein, prospective investors should bear in mind that past performance is not necessarily indicative of future results and there can be no guarantee that the Fund will achieve comparable results, that the Fund will be able to make investments similar to the historic investments presented herein (because of economic conditions, the availability of investment opportunities or otherwise), that targeted returns, diversification or asset allocations will be met or that the Fund will be able to implement its investment strategy or achieve its investment objectives. Any information regarding prior investment activities and returns contained herein has not been calculated using generally accepted accounting principles and has not been audited or verified by the Fund’s auditor or any independent party. Unless otherwise indicated, internal rates of return (including targeted rates of return) are presented on a “gross” basis (i.e., they do not reflect management fees, carried interest, taxes, transaction costs and other expenses to be borne by investors in the Fund, which in the aggregate are expected to be substantial and which would reduce the actual returns experienced by an investor). Nothing contained herein should be deemed to be a prediction or projection of future performance of the Fund.

This document includes Brookfield’s estimates of the projected performance of certain unrealized investments currently held by other funds, including any predecessor funds, and investment programs managed by Brookfield. Although this information is forward-looking by its nature and actual results are likely to differ, perhaps materially, from these estimates, Brookfield believes that the estimates have a reasonable basis.

Actual returns on unrealized investments will depend on, among other factors, future operating results, the value of the assets and market conditions at the time of disposition, legal and contractual restrictions on transfer that may limit liquidity, any related transaction costs and the timing and manner of sale, all of which may differ from the assumptions and circumstances on which the valuations used in the prior performance data contained herein are based. Accordingly, the actual realized returns on unrealized investments may differ materially from the returns indicated herein. Brookfield will provide more detailed information on the material factors or assumptions that were applied in making the projections and the material factors that could cause actual results to differ materially from the projections to any investor on request.

Certain of the information contained herein is based on or derived from information provided by independent third party sources. While Brookfield believes that such information is accurate as of the date it was produced and that the sources from which such information has been obtained are reliable, Brookfield does not guarantee the accuracy or completeness of such information, and has not independently verified such information or the assumptions on which such information is based.

Nothing contained herein should be construed as legal, business or tax advice. Each prospective investor should consult its own attorney, business adviser and tax advisor as to legal, business, tax and related matters concerning the information contained herein.

Neither this document nor the interests offered hereby have been approved by the United States Securities and Exchange Commission or by any regulatory or supervisory authority of any state or other jurisdiction, including Canada and the United Kingdom, nor has any such authority or commission passed on the accuracy or adequacy of this document. The information contained herein is subject to correction, completion, verification and amendment. Any representation to the contrary is a criminal offense.

This document is not intended to be made available to any person in Australia who is not a wholesale client (within the meaning of the Corporations Act 2001 (Cth) of Australia). Any offer or invitation in Australia to invest in the Fund, and any investment in the Fund by a person in Australia, is limited to such wholesale clients. Any such offer or invitation is made in the expectation that such person will not sell or transfer its interest in the Fund within 12 months after the issue of the interest. This document is not a disclosure document or product disclosure statement (within the meaning of the Corporations Act 2001 (Cth) of Australia).

U.S. Internal Revenue Service Circular 230 Notice: To ensure compliance with U.S. Internal Revenue Service Circular 230, prospective investors are hereby notified that: (a) any discussion of federal tax issues contained or referred to herein is not intended or written to be used, and cannot be used, by prospective investors for the purpose of avoiding penalties that may be imposed on them under the U.S. Internal Revenue Code; (b) such discussion is written in connection with the promotion or marketing by the Fund of the transactions or matters addressed herein; and (c) prospective investors should seek advice based on their particular circumstances from an independent tax advisor.

Unless otherwise noted, all references to “$” or “Dollars” are to U.S. Dollars. All time-sensitive representations are made as of December 2013, unless otherwise expressly indicated.

Page 1 of 7

State of New Mexico STATE INVESTMENT COUNCIL

41 Plaza La Prensa Santa Fe, New Mexico 87507

Phone: (505) 476-9500 Fax: (505) 424-2510

\

MEMORANDUM

DATE: May 27, 2014

TO: Council Investment Committee

FROM: Robert “Vince” Smith, CFA, Deputy State Investment Officer Geraldine Barlow, Director Real Return

Lisa Bacon, CAIA, Real Assets Investment Analyst

SUBJECT: Recommendation to adopt the Real Return Investment Policy

Summary Recommendation The Real Return portfolio has historically been comprised of Real Assets (60%) and Financial Assets (40%).

The Real Assets component of the Real Return allocation is currently comprised of a number of sub allocations (infrastructure, timberland, energy, and farmland) which have historically been governed by individual investment policies (“Prior Policies”). These Prior Policies were adopted by the SIC in March 2013 (refer to Attachment B for the Prior Policies). No formal policy has been adopted to date for the Financial Assets allocation, which includes inflation linked financial instruments.

SIC Staff has developed a Real Return Investment Policy (“Real Return Policy”) for the following reasons:

• Provides for a more comprehensive and holistic approach to Real Return as an asset group; • Allows for a more tactical approach to allocating capital between Real Assets and Financial

Assets during market cycles; • Enables a more strategic approach in allocating capital to and managing capital returned from

illiquid strategies over the long term; and • Provides increased flexibility to accommodate for differences in the geographic availability of

strategies within Real Assets. In summary, the proposed Real Return Policy is intended to supersede the existing individual investment policies for infrastructure, energy, timberland, and farmland and in-turn, address the Financial Assets in order to provide a single comprehensive framework for the Real Return allocation. SIC Staff recommends the Council adopt the Real Return Policy as set out in Attachment A. It is important to note that the Council will still have full discretion over each individual investment recommended by SIC Staff and its Consultants.

SUSANA MARTINEZ GOVERNOR

STEVEN K. MOISE STATE INVESTMENT OFFICER

ROBERT “VINCE” SMITH, CFA

DEPUTY STATE INVESTMENT OFFICER

Page 2 of 7

The balance of this memorandum provides a detailed explanation of the changes from the Prior Policies. A marked version of the Real Return Policy against the four Prior Policies has not been provided due to the complexity of this approach. Summary of Policy Revisions A summary of the revisions and additions to the prior investment policies are set out in detail below. References to the new Sections in the Real Return Policy are also indicated. 1. Inclusion of a Mission Statement (Section 2, pg. 1) – A statement has been included to align the implementation of the Policy with the SIC’s Mission, Vision and Values. The inclusion of the mission statement strengthens the Policy. 2. Objectives (Section 3, pg. 1) – The objectives for the Real Return Portfolio have been expanded compared to the Prior Policies to include two additional objectives being i) To provide diversification from other asset classes; and ii) Reduce the overall SIC portfolio volatility. These additions strengthen the Policy. 3. Portfolio Allocation (Section 4, pg. 2) – The Real Return Policy combines the Real Assets Target (6%) and the Inflation Related Target (4%) to provide an overall Real Return Target (10%). The targeted allocation between Real Assets and Inflation Related (now “Financial Assets”) is considered in a range as follows

• Real Assets, 60% - 80%; and • Financial Assets, 20% - 40%.

The range for Real Assets is consistent with the Prior Policies which indicated the allocation to Real Assets, for example, would be 6% with a permitted range of +/- 2%. There is no prior policy statement for Financial Assets. It is noted that these proposed ranges in the Real Return Policy are in line with the recent Real Return Asset Study and the Recommended Portfolio approved by the Council in April 2014. 4. Sub Allocations within Real Assets (Section 4A, pg. 2) – The allocation targets in the Prior Policies were typically established as a fixed percentage with a variation of +/- 5%. For example, the infrastructure allocation target was 30% of Real Assets with the flexibility to range between 25% and 35%. The Real Return Policy sets a broader allocation range for each sub asset class for the following reasons:

• Accommodates for timing differences often encountered when managers are in and out of the market raising capital. For example, SIC may be underweight Timberland due to high quality managers being out of market with the view that it is more prudent to wait for those managers to return to the market to raise capital, rather than allocating to lower quality managers; and

• Allows more flexibility to allocate capital with a longer term horizon. For example SIC may be at the top end of its range for a sub-asset class, e.g. 40% for Energy, if SIC considers the opportunity in the market to be strong or anticipates a large return of capital from its current investments in that sub asset class, or both. The long term allocation for each asset class is likely to be well within the range.

Page 3 of 7

The table below presents the target allocation ranges in the Prior Policies compared to the target range proposed in the Real Return Policy.

Sub-Allocation Prior Policies Real Return Investment Policy

Allocation Range % of Real Assets

Allocation Range % of Real Assets

Agriculture Policy established but no formal allocation

0% - 15%

Commodities 10% 0% - 10%

Energy 25%-35% 0% - 40%

Infrastructure 25%-35% 0% - 40%

Timberland 25%-35% 0% - 40%

Other N/A 0%- 15% We note that the proposed ranges for the Real Return Policy are in line with the recommended Portfolio in the Real Return Asset Study approved by the SIC in April 2014. 5. Portfolio Benchmarks (Section 4B, pg. 3) – This section outlines the proposed benchmarks for each sub asset class and the Real Return Portfolio overall. The key difference from the Prior Policies is that each sub asset class now has a more specific short term benchmark. The indices specified for each sub asset class were used by the Fund’s Consultant in the Real Return Asset Study approved by the Council in April 2014. Given some of the limitations in the Real Asset class indices (versus the more liquid asset classes) a broader longer term benchmark is also referenced. In terms of standard deviation, there is a broad range of risk profiles within the Real Return Portfolio. The objective is to manage the Real Return Portfolio to an overall targeted standard deviation of 10% -12%. This range is consistent with the Recommended Portfolio from the April 2013 Real Return Asset Study. 6. Portfolio Construction (Section 5, pp. 4-10) – The changes to portfolio construction include adding a series of general principles (refer Section 5A on pg. 4) and a number of specific portfolio construction parameters (refer to Section 5B). Portfolio construction parameters are considered at a macro Real Return level or where more appropriate, a Real Asset or Financial Asset level. This allows the SIC to approach portfolio construction in a more strategic fashion. For example, the strategic and tactical parameters will now apply to Real Assets overall (and in-turn Financial Assets) instead of individually applying to each of the sub-asset classes e.g. infrastructure, timberland, energy, and farmland. This enables the SIC to be overweight to tactical opportunities in its Farmland/Agriculture allocation, for example, and overweight to strategic investments in its infrastructure allocation, so long as the strategic and tactical targets are met overall within the Real Asset portfolio.

Page 4 of 7

The table below presents the existing target, new proposed target and rationale for the changes in the Real Return Policy Portfolio Construction Parameter

Existing Target New Target (%) Discussion

Strategic Investments

Real Assets :60%-100% Financial Assets: N/A

Real Assets: 60%-100% Financial Assets: 40% -100%

Real Assets will have a greater strategic focus given they are more illiquid.

Tactical Investments

Real Assets :0% - 40% Financial Assets: N/A

Real Assets: 0%-40% Financial Assets: 0% - 60%

The allocation amongst Financial Assets likely to be more tactical than Real Assets

OECD Real Assets: 90%- 100% Financial Assets: N/A

Real Return: 80%-100% This allocation will now apply to the overall Real Return Portfolio rather than to individual sub asset groups.

Non OECD Real Assets: 0%- 10% Financial Assets: N/A

Real Return: 0% - 20% This allocation will now apply to the overall Real Return Portfolio rather than to individual sub asset groups. Both Timberland and Farmland strategies are likely to involve some non OECD exposure. Similarly the Financial Assets portfolio has an allocation to Emerging Markets Debt.

Single Asset Investment Limitation

Real Assets – Single investment limitation: • Infrastructure : 25%

limit of infrastructure portfolio

• Energy: 35% limit of energy portfolio

• Farmland: 35% limit

• Timberland: 35% limit

Financial Assets: No limit established.

An investment in a single asset may be no greater than 5% of Real Return, i.e. no greater than approximately $80m based on the current fund size.

New overarching parameter is not materially different than Prior Policy sub asset class limits. Note that this parameter relates to investment in single assets e.g. co-investments or funds focused on a single asset.

Manager Concentration

Real Assets For each of Infrastructure, Energy, Farmland and Timberland a single Fund Sponsor may be no greater than 20% of the combined Real Assets and Real Estate Programs by commitment.

No greater than 35% of Real Return (i.e. no greater than 3.5% of the SIC portfolio)

Previous limitation represented around 3.2% of the SIC portfolio. New limitation is only slightly higher at 3.5% of the SIC portfolio which is well within the 10% limitation. Manager selection will also consider what other exposures exist within SIC’s portfolio.

Leverage Real Assets • Infrastructure: 75%

limit • Energy: 75% limit • Farmland: 50%

limit • Timberland: 30%

limit Financial Assets: No limit established.

Real Assets: 65% maximum Financial Assets: N/A

Considered at the Real Asset level rather than for each sub asset class. Financial Assets: SIC Staff and Consultants will consider the use of leverage at the fund level.

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Qualitative parameters will be considered in terms of sizing SIC’s recommended investment relative to the size of proposed funds being considered. SIC will generally seek to be no greater than 25% of any fund (excluding GP commitment) and conversely will seek to ensure it maximizes its governance rights in larger funds. Refer to Section 5B on page 10 for further detail. 7. Program Implementation (Section 5C, pg. 10) – The approach to program implementation was not modified from the Prior Policies. 8. Risk Management – The risk management areas in the Prior Policies of asset and geographic diversification, size of investments and manager concentration are included in the portfolio construction parameters as they are portfolio construction considerations rather than a risk management tool after the portfolio has been constructed. In practice, Staff and the Consultant(s) monitoring of the Real Return Portfolio will review and report on the Portfolio’s compliance with the Real Return Policy and this process will identify any material variances to the Investment Committee and Council. 9. Portfolio Oversight (Section 6, pg. 11)

A. Roles and Responsibilities - The roles and responsibilities of each of the Council and Investment Committee, Staff, Fund Sponsors, and the Consultant are primarily unchanged. A number of additions have been made as follows for consistency and clarification purposes − Staff:

1) An additional responsibility has been added to “work with the Consultant(s) to evaluate and recommend commingled fund, joint venture and separate account investments to the Council and Investment Committee”. This simply mirrors an existing obligation of the Consultant to work with Staff “to evaluate and recommend commingled fund, joint venture and separate account investments to the Council and Investment Committee”

2) The monitoring function has been expanded to ensure monitoring includes compliance with the Real Return Policy.

− Consultant role - this section was adjusted to consider that there may be more than one

consultant involved in the Real Return portfolio, as is currently the case.

B. Reporting - This section has been modified to accommodate more than one Consultant being responsible for elements of the Real Return portfolio, as is currently the case. From a practical perspective, if more than one Consultant is responsible for the Real Return portfolio Staff may combine the Consultant(s) reports to produce a Real Return Performance Measurement Report for the Council.

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Attachment A: Real Return Investment Policy, May 2014

Page 7 of 7

Attachment B: Prior individual Investment Policies for Infrastructure, Energy, Timberland and Farmland

Real Return Investment Policy

M A Y 2 7 , 2 0 1 4

2

Background

• The Real Return Investment Policy replaces the individual policies for Real Assets and incorporates Financial Assets.

• The Council will continue to be the sole decision making entity to review and approve individual investments as recommended by SIC Staff and its Consultants.

• The new Real Return Policy provides for a strategic and long term approach to building the Real Return portfolio.

3

Material Revisions

• Real Return Portfolio Allocation: • Real Assets (60%-80%) – was previously 60% with a permitted range of +/- 20%. • Financial Assets (20%-40%).

• Broader allocation ranges for Real Assets: Enables a longer term strategic view to portfolio construction; and Allows for differences in availability of strategies in market.

• Portfolio Benchmarks:

• Portfolio will be measured against a blended custom index; and • The overall objective will be to construct the portfolio to achieve an overall standard deviation of

no greater than 12% p.a.

• Portfolio Construction Criteria:

• Non OECD Exposure – previously 0%-10%, now 0% - 20%. • Manager concentration limit lifted marginally from 3.2% to 3.5% of SIC portfolio. • Leverage – new combined limit of 65% (debt to enterprise value) introduced for Real Assets.

Guidelines introduced for Financial Assets.

4

Recommendation

• SIC Staff recommends the Council adopt the Real Return Policy as set out in

Attachment A of the Memorandum.

NEW MEXICO


Real Return Portfolio Investment Policy Statement

May 2014

Table of Contents

CONTENTS Page I. Executive Summary ............................................................................................................. 1 2. Mission ................................................................................................................................ 1 3. Objectives of the Real Return Program .............................................................................. 1

4. Portfolio Allocation ............................................................................................................. 2

A. Sub Allocations within the Real Asset Portfolio...................................................... 2 B. Performance Benchmarks ....................................................................................... 3

5. Portfolio Construction......................................................................................................... 4

A. General Principles ................................................................................................... 4

B. Specific Portfolio Construction Parameters ............................................................ 4 1. Strategic versus Tactical .............................................................................. 4 2. Asset Type Diversification ........................................................................... 6 3. Geographic Diversification .......................................................................... 7 4. Size of Investments ..................................................................................... 8 5. Manager Concentration .............................................................................. 8 6. Leverage ...................................................................................................... 9 7. Commitment Sizing and Governance Rights .............................................. 9

C. Program Implementation ..................................................................................... 10 D. Risk Management ................................................................................................. 11

6. Portfolio Oversight ............................................................................................................ 11

A. Roles and Responsibilities ..................................................................................... 11 B. Reporting............................................................................................................... 14

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1. EXECUTIVE SUMMARY The New Mexico State Investment Council (the “SIC”) has been authorized to allocate a portion of the New Mexico Land Grant Permanent Fund and the Severance Tax Permanent Fund (collectively the “Funds”) to a selection of “real return” investments, including both tangible (“real”) assets, as well as financial securities that are designed to provide the total portfolio with alternative sources of investment return (to stocks and bonds) as well as inflation protection. This Investment Policy sets forth the objectives, investment guidelines, and processes governing the SIC Real Return Portfolio. This Investment Policy also sets forth the standard of care governing the management of the Portfolio. This Investment Policy also sets forth the roles and responsibilities of the Council, the SIC’s investment staff (the “Staff”), and the SIC’s external consultants (the “Consultants”) relating to the oversight and management of the Real Return Portfolio. 2. MISSION The Real Return Investment policy will be executed in a manner that is consistent with the SIC’s Mission, Vision and Values. The SIC’s Mission is “to protect and grow the state’s permanent endowment funds for current and future generations through prudent, professional investment management”. The Real Return allocation will play a key role in delivering on this objective by providing stable and reliable income, capital preservation, diversification and measured growth. Section 3 expands further on the objectives of the allocation. 3. OBJECTIVES OF THE REAL RETURN PROGRAM The key objectives of the SIC’s Real Return Portfolio are as follows:

• Generate stable, reliable income; • Produce an attractive risk-adjusted return; • Provide diversification from other asset classes; • Reduce the overall SIC portfolio volatility; • Provide an inflation hedge; and • Capital preservation.

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4. PORTFOLIO ALLOCATION

The long term target allocation for Real Return is 10% of the Funds’ assets. The table below sets out the broad allocation ranges for the Real Assets and Financial Assets within the Real Return Portfolio.

Real Return Portfolio

Component

Strategies Percentage of Real Return

Portfolio

Overall Target Allocation within

SIC Portfolio Real Assets Infrastructure, Energy, Timberland,

Farmland / Agriculture, Commodities and other real assets

60% - 80%

10% Financial Assets TIPS, Bank Loans, Securitized Loans, Sovereign Bonds, Low Duration Emerging Markets Debt

20%-40%

Specific sub allocations within the Financial Assets component are not contemplated given that allocation is expected to be more tactical than the Real Assets allocation. Broad target allocation ranges within the Real Asset allocation are set out below.

A. Sub-allocations within the Real Asset allocation

The Real Assets allocation has been established with a number of sub-allocations. The table below shows the target sub-allocations within Real Assets. The ranges are intended to provide flexibility for overall management of the portfolio and to allow a more tactical approach when strategies of interest are in and out of market.

The Real Assets component overall is targeted to represent between 60% - 80% of the Real Return allocation at any point in time.

Sub-Allocation Real Assets (60% - 80% of Real

Return) Percent of SIC

Portfolio (Real Assets 60%)

Percent of SIC Portfolio

(Real Assets 80%) Allocation Range % of Real Assets

Agriculture 0% - 15% 0% - 0.9% 0% - 1.2%

Commodities 0% - 10% 0% - 0.6% 0% - 0.8%

Energy 0% - 40% 0% - 2.4% 0% - 3.2%

Infrastructure 0% - 40% 0% - 2.4% 0% - 3.2%

Timberland 0% - 40% 0% - 2.4% 0% - 3.2%

Other 0%- 15% 0% - 2.4% 0% - 3.2%

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B. Performance Benchmarks The table below sets out the benchmarks for each asset class and the overall expected standard deviation for the Real Return Portfolio. To the extent new asset types are added to the portfolio, particularly in the case of the Financial Assets, an appropriate benchmark will be established in consultation with the Fund’s Consultant and the Council.

Asset Class Benchmark Real Return Expected

Annual Standard

Deviation Agriculture Short Term: NCREIF1 Farmland Index

Longer Term: Inflation + 3%

10%-12%

Commodities Dow Jones-UBS Commodity Index (Total Return) Energy Short Term: Thomson One Energy Pooled Returns

Long Term: Inflation + 3% Infrastructure Short Term: Equal blend of DJ Brookfield Infrastructure

Index and 10 year US Treasury Rate + 4% Long Term: Inflation + 3%

Timberland Short Term: NCREIF Timberland Index Longer Term: Inflation + 3%

TIPS Barclays Capital US Treasury: US TIPS Index

Floating Rate Bank Loans

Credit Suisse Leveraged Loan Index

Emerging Market Debt

JPMorgan GBI-EM Global Diversified TR Index (Loc Cur)

TOTAL PORTFOLIO

Short Term: Custom Blended Index Long Term: Inflation + 3%

For reporting purposes, the Portfolio will be measured against a custom blend of indices representative of the recommended portfolio developed in consultation with the Fund’s Consultant. The longer term benchmark for real return will be 3% plus inflation (as measured by the United Stated Bureau of labor Statistics Consumer Price Index for all Urban Consumers: CPI-U) as measured over a full market cycle or 5 years (greater of).

1 National Council of Real Estate Investment Fiduciaries.

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5. PORTFOLIO CONSTRUCTION A. General principles

Portfolio construction will be guided by the following general principles:

• Broad allocation ranges to strategic and tactical strategies; • Strategic allocations to asset classes based on return and risk profile over a full cycle; • Market opportunities and conditions; • Geographic availability of various sub asset classes; • Timing of various strategies being in market versus portfolio needs; • Building sustainable and aligned relationships with managers and other investment

partners and leveraging those relationships across strategies; and • Securing governance rights (e.g., Advisory Board seats) to maximize the protection

of SIC’s investments, where possible. B. Specific portfolio construction parameters The following section discusses specific portfolio parameters in more detail that are intended to apply to the Real Return portfolio at an aggregate level. 1. Strategic versus tactical Strategic investments will provide the Portfolio’s foundation exposure with the objective to provide a meaningful portion of the return from current income with more modest returns from appreciation. In general, strategic investments represent the core exposure to the respective real return category, with the objective of generating a meaningful (but not necessarily majority) portion of the total return from current income (i.e., cash yield), and the balance from capital appreciation, as applicable for the category. The risk-return profiles for strategic investments represent the low- to mid-range within respective categories. The Council recognizes that pure strategic exposure is difficult to execute outside of direct investments and often managers will pursue both strategic as well as tactical investments within their portfolios. Further, depending on the asset class and the particular cycle, there may be other reasons to allocate differently between strategic and tactical.

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In general, tactical investments will consist of a wider range of strategies and risk-return profiles, individually and collectively, than those targeted for strategic investments. They would be expected to offer little or no current income, compared to their strategic counterparts, and generate the majority or all of the total return from capital appreciation. The risk-return profiles for tactical investments represent the upper-mid to high end of the range within respective sub-asset categories. A manager may not be considered for inclusion in the Real Return Portfolio if SIC staff, in consultation with its Consultant(s), believes the proposed commitment would result in an over-exposure to the broad portfolio construction parameters. The table below sets out a number of parameters which is intended to guide the categorization of strategic and tactical investments. Sub Asset Class

Strategic Tactical

Timberland • Operating timberlands which include even age class distribution and species diversification; or

• Primarily developed timberland markets in the OECD.

• May be OECD or Ex OECD; • May derive a higher proportion of their returns

from Highest and Best Use (HBU) conversion; or • May include pre-merchantable timber or

Greenfield development; and

Energy • Midstream energy with a high proportion of the revenue streams guaranteed by contract or concession;

• Upstream where commodity price risk is substantially mitigated or hedged; or

• Power generation, transmission, and distribution that generally involves contracted cash flows, and renewables (such as wind, solar, and hydro power) that have contracted cash flows or otherwise benefit from regulatory or tariff support.

• Upstream energy assets; land and resource rights acquisition; extraction and development of energy resources; and early-stage or new production, processing, and transportation facilities and infrastructure;

• Investment in management teams executing strategies in the upstream or midstream sectors; or

• Strategies may incorporate elements of resource extraction and/or development risk, construction risk; operational and management risk, leverage or interest rate risk, commodity price risk, refinancing risk, regulatory risk, environmental risk; and social or political risk.

Infrastructure • Assets have limited competition as a result of natural monopolies, government regulation or concessions and generate a reliable income stream with relatively low asset value volatility;

• Assets that benefit from high barriers to entry, economies of scale, inelastic demand for the product or service being provided, and are generally long in duration (10+ years); or

• Relatively high current income component which represents a significant majority of the expected total return.

• May involve elements of construction risk; operational and management risk; leverage or interest rate risk; refinancing risk, regulatory risk; environmental risk; and social or political risk; or

• May involve green-field construction, development or early stage ramp-up strategies or listed equities.

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Sub Asset Class

Strategic Tactical

Farmland / Agriculture

• Primarily land assets leased to third party operators; or

• Income component will represent a majority of the total expected return.

• May involve development (i.e. developing raw land to add capital value), developmental crops , operator only model, own and operate model, crop purchase contracts in lieu of cash rent, water rights, processing rights, farm equipment and value added crop handling, storage and processing facilities,

• May involve non-OECD or emerging countries; 9or

• Publicly traded companies engaged in agriculture (>50% of revenues derived from agricultural pursuits) may also be considered

Financial Assets

• Floating rate government debt (TIPS); • Bank loans; and • Other floating rate asset backed debt.

• Short duration emerging market sovereign debt; and

• Short duration of floating rate credit oriented domestic/foreign debt.

2. Asset Type Diversification The portfolio will not have definitive constraints on asset diversification. The overall Real Return Portfolio will seek diversification by asset type, revenue drivers, and geography in an effort to mitigate portfolio volatility. The SIC recognizes that real assets are relatively illiquid and individual assets are not of uniform size and quality. Furthermore, the Real Asset program will be implemented primarily through vehicles where the SIC has limited control over the asset type distribution other than through selection of the strategy itself. In contrast, Financial Assets are more liquid and diversification can be more easily achieved. The following table details some guidelines that will be taken into consideration when considering asset type diversification. The key guiding principles in relation to asset type will be ensuring the targeted balance between Strategic and Tactical is maintained in the Fund.

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Asset Class Asset Type Diversification Considerations Agriculture • Input type e.g. food , fuel, feed;

• Crop type: permanent or row crop; and

• Growing seasons.

Energy • Source: oil, natural gas, processed oil and gas products, coal, other mined or extracted energy sources, power, and renewables;

• Revenue type: volume based, commodity price based, take or pay, fixed, and fixed with indexation; and

• Value chain: upstream (e.g., reserve-based exploration, acquisition, development, and production), midstream (e.g., infrastructure, gathering systems, pipelines, processing facilities, transportation, and related service industries), and downstream (e.g., power plants, and energy distribution).

Timberland • Species e.g., softwoods, hardwoods, woody, non woody;

• Age Class e.g., emerging growth, established growth and mature growth; and

• Product Type e.g., pulpwood, chip-n-saw, mature saw-timber.

Infrastructure • Revenue Type: e.g., regulated , partially regulated, and contracted;

• Sector: e.g., transportation, energy, water; and

• Stage of maturity: stabilized/ mature, growth and development.

Financial Assets

• Issuer/ Counterparty;

• Floating rate structure;

• Duration;

• Credit profile;

• Domestic / foreign; and

• Sovereign / corporate.

3. Geographic Diversification The Real Return Portfolio is intended to be diversified globally. The majority of the portfolio will be located in the developed economies around the world (generally, those member nations in the OECD) however, investments in emerging economies will be permitted, provided that the combined total exposure to non-OECD regions remains below 20% of the Real Return Portfolio (measured by market value exposure).

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4. Investment Concentration The Fund will diversify to reduce the impact of a single investment on the performance of the Real Return Portfolio. There are separate considerations for each of the Real Assets and Financial Asset Allocations. For Real Assets, in order to mitigate the risk of a single investment, the amount of equity that may be invested in a single investment is limited to no more than 5% of the overall total long term Real Return Portfolio Target. “Single investment” is defined as any single stand-alone investment or co-investment, or any commingled investment vehicle which focuses on a single asset. Commingled investment vehicles, such as open-end or closed-end funds, partnerships, and other investment vehicles which hold multiple investments are considered multi-investment vehicles, and the aggregation of the underlying investments within the portfolios is not considered a “single investment”. In addition, SIC staff and its consultants will review each manager’s proposed underlying investment concentration limit in considering selection of the manager and the strategy. Typically, SIC prefers managers to limit concentration to any single asset within their portfolio to less than 20% of the fund strategy. In the Financial Assets allocation, managing concentration risk is important in minimizing capital loss and volatility. Comingled strategies or separate accounts within Financial Assets will typically be more diversified than the strategies in the Real Asset allocation due to the difference in investment universe size and execution time frames. 5. Manager Diversification Manager relationships are very important in the Real Asset classes due to the difficulty and cost of accessing these asset classes, and the illiquidity of most of the Fund structures. The SIC will, however, take a measured approach to its concentration to individual manager/fund sponsor or its affiliated entities. As a result, the SIC will limit a single fund sponsor to managing no more than 35% of the total Real Return Program (by commitment), which represents approximately 3.5% of the overall SIC portfolio. This target is below the Fund requirement of 10% recognizing that it is more difficult to re-allocate or withdraw funds from less liquid strategies. The Real Return manager selection process will also take into account any current manager exposures outside the Real Return portfolio that may exist.

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6. Leverage The use of leverage by fund sponsors is particularly relevant to the Real Assets allocation and will be monitored by the SIC Staff and Consultant(s) on a quarterly basis to mitigate imprudent risks. The Real Assets Portfolio leverage in aggregate is not intended to exceed 65% (by market value of debt to enterprise value) at any quarter end measurement date. To ensure compliance with this limitation, no manager will be selected for the portfolio if the addition of the commitment at maximum permissible leverage would cause the Real Assets Portfolio to exceed this limitation. Most of the strategies that will fall within the Financial Asset allocation are credit strategies and therefore the same leverage considerations for Real Assets will not directly apply to the Financial Asset allocation and thus Financial Assets will be excluded from this leverage calculation. SIC Staff and its Consultants however will review each manager’s intended use of leverage at the fund level within Financial Asset strategies to ensure its appropriateness in the market cycle.

7. Commitment Sizing and Governance Rights Governance Rights and voting power are important considerations in sizing Real Asset investments due to their lack of liquidity. Fund strategies in Real Assets typically vary in size from $250 million dollars to multi-billion dollar funds. For Real Asset strategies, the SIC will generally seek to be less than 25% of a comingled fund (excluding GP commitment) as a method to ensure the strategy is more broadly supported by the institutional investment community. In addition, for larger Real Asset fund strategies, the SIC will consider sizing its commitment so it is positioned to secure an Advisory Board seat to enhance the protection and value of SIC’s investment. Advisory Board seats enhance the visibility and monitoring ability for Limited Partners on the General Partner’s strategy and enable input into a range of decisions the General Partner may make from time to time. The Advisory Board typically also plays a key role if they Key Man clause is triggered or in the event of a suspension of the Investment Period and in some cases bankruptcy of the General Partner. It may not always be possible or practical to secure an Advisory Board seat, thus other factors that will be considered in considering the investment include considering the extent of the SIC’s relationship with the Manager, the actual voting power in the fund, the uniqueness of the strategy, and the extent of the market opportunity.

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The following table summarizes the key parameters for portfolio construction discussed above:

Investment Allocation Real Assets Financial Assets Strategic 60%-100% 40%-100% Tactical 0%-40% 0%-60% OECD 80%-100% Non OECD 0%-20% Investment Concentration No greater than 5% of the Real Return

Portfolio in a single asset Manager Concentration No greater than 35% of Real Return Leverage 65% maximum N/A

C. Program Implementation

The Funds shall acquire exposure to Real Assets primarily through commingled fund vehicles (open end and closed end) and, to a lesser extent, joint venture limited partnerships and separate accounts. The appropriate structure shall be determined by the Council, Staff, and Consultant(s) in developing and managing the performance and liquidity of the Real Assets Portfolio. Commingled fund investments by nature are discretionary relationships, where the sponsor or manager of the fund has ultimate control over the investment decision-making process and the investor typically has limited rights with respect to the management of the commingled fund. The term for a traditional commingled fund in the real assets universe ranges from 10 to 20 years and may also be open ended. Contract negotiations with managers considered for inclusion in the Real Assets Portfolio will include side letter language that requires the manager to notify SIC in advance of any prospective real assets acquisitions in the state of New Mexico. Exposure within the Financial Asset allocation is expected to be primarily gained via a co-mingled fund or separate account. In some cases, SIC staff may recommend the exposure is best achieved and executed on a direct basis. The table below identifies the most common methods of access among the permissible investment vehicles for the Real Return Portfolio.

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Real Return Portfolio Implementation

Permitted Investment Vehicles

Private Fund Direct / Indirect Listed Public Companies

Other Special Partnerships and

Trusts2

- Unlisted - Closed-End or

Open-End - “Club” structures

- Joint venture - Co-invest interest - Separate account

- Engaged in real assets-related business(es) or assets

- Individually or collectively listed (e.g., ETFs)

- Publicly traded - Privately traded

D. Risk Management Consultant(s) and Staff shall monitor compliance with risk management policies quarterly through the performance measurement process, and periodically report to the Council on the policy items below, as provided for under Section 6.B. All real return investments shall be subject to the prudent investor rule as codified in the New Mexico statutes which stipulates that a fiduciary's performance is measured on the performance of its entire portfolio, rather than individual investments. Further, all investments will be required to comply with applicable local, state, and federal statutes. 6. PORTFOLIO OVERSIGHT The portfolio oversight procedures set forth below are divided into roles and responsibilities, and reporting.

A. Roles and Responsibilities The Real Return portfolio will be planned, implemented and monitored under the oversight of the full Council, with the coordinated support of the Investment Committee, Staff, fund

2 For example, these may include Real Estate Investment Trusts (REITs) in the agriculture and timber sectors, and Master Limited Partnerships (MLPs) in the energy sector.

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sponsors, and Consultant(s). The description of the major responsibilities of each participant is set forth below.

1. Council and Investment Committee The role of the Council is to ensure that the assets of the Funds are effectively managed in accordance with the laws of the State of New Mexico and the Investment Objectives and Policies of the Council. The Investment Committee will typically review investment materials and recommendations prior to advancement to the full Council, but final review, consent, and approval authority is vested in the Council. The responsibilities of the Council and Investment Committee are listed below. • Establish the objectives and risk management policies for the Real Return Portfolio. The

Council will perform this role by reviewing and approving, or amending and approving as appropriate, the Real Return Investment Policy submitted by SIC Staff or its Consultant(s) on an annual basis.

• Review and approve, or amend and approve, the Annual Investment Plan for Real Return

before or during the first quarter of the year. During the fourth quarter of the year, the Council and Investment Committee will review the Annual Investment Plan for its appropriateness and to identify any desired changes.

• Select, retain or remove the fund sponsors and any other parties deemed appropriate.

The Council and Investment Committee shall approve any capital allocations to individual fund sponsors.

• Review the performance of the Real Return Portfolio, along with the fund sponsors, and

its compliance with the objectives and policies established by the Council and Investment Committee. For this review, the Consultant(s) will provide the Council and Investment Committee with quarterly Performance Measurement Reports.

• Review and approve new investments. 2. Staff The Staff reports to the Council and its role shall be to monitor the activities and work in conjunction with the Consultant(s) to provide input to the Council and Investment Committee on all such matters concerning Real Return investments. The Staff’s role and responsibilities shall include the following:

• Prepare the Real Return Investment Policy and Annual Investment Plan in consultation with

its Consultant(s) and submit these to the Council and Investment Committee for approval;

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• Work with the Consultant(s) to evaluate and recommend commingled fund, joint venture

and separate account investments to the Council and Investment Committee; • Work with the Consultant(s) to monitor fund sponsors and issue Requests for Proposals

(RFPs) or Invitations to Bid (ITBs) for manager searches where relevant; • Work with the Consultant(s) to develop specific capital allocation recommendations

contained in the Annual Investment Plan and submit the same to the Council and Investment Committee for approval;

• Prepare funding procedures and coordinate the receipt and distribution of capital with the

fund sponsors with the assistance of Consultant(s); and • Monitor the performance of the Real Return Portfolio, its fund sponsors, Consultant(s), and

the compliance of the Program with the investment planning and management documents and this Policy.

3. Fund Sponsors Fundamentally, the fund sponsors will acquire, sell and manage Real Return investments consistent with the respective documents governing the relationship between the SIC and fund sponsors and any other program documentation developed by Consultant(s) and/or Staff and approved by the Council and Investment Committee. The fund sponsors shall provide the Council and Investment Committee, Staff and Consultant(s) with such information as may be required to properly monitor the fund sponsors and its investments. A fund sponsor may serve the SIC as a fiduciary, or may serve as fiduciary to the pooled vehicles in which the SIC invests. Fund sponsors will perform this role in compliance with the investment planning and management documents created by the SIC. Each quarter the fund sponsors shall provide performance measurement data in the form and substance as required by the SIC and its Consultant(s) and in compliance with this Real Return Investment Policy.

4. Consultant(s) While the Staff has the active day-to-day role of managing the Real Return Portfolio, the Consultant(s) works for and reports to the Council. Thus, the Consultant(s) shall perform the following services:

• Work with Staff to prepare the Real Return Investment Policy and Annual Investment Plan

and provide the Consultant(s)’s review and recommendation to the Council, Investment Committee and Staff;

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• Work with Staff to develop shortlists of fund sponsors and perform searches for fund

sponsors and other professionals, and report on such searches with Staff to the Council and Investment Committee as required under the applicable search policy;

• Work with Staff to evaluate and recommend commingled fund, joint venture, and separate

account investments to the Council and Investment Committee; • Prepare quarterly Performance Measurement Reports for relevant measurement periods

for the Real Return Portfolio, its fund sponsors, and investments; and • Review and monitor the investment activity in the Portfolio and the performance of the

fund sponsors and the Portfolio. The Consultant(s) will promptly advise the Council, Investment Committee and Staff of any material changes in the capital markets that would influence its Real Return Investment Policy or Annual Investment Plan. The Consultant(s) will inform the Council, Investment Committee, and Staff of any significant changes with respect to the fund sponsors that might influence the fund sponsors’ ability to continue to provide services to the Funds. The Consultant(s) shall provide the Council, Investment Committee, and Staff with relevant research materials as needed or as directed by the Council/Investment Committee or Staff. The Consultant(s) will serve the New Mexico State Investment Council as a fiduciary to the Funds.

B. Reporting The Council, Investment Committee and Staff will receive reports from its fund sponsors and Consultant(s) that will contain information to enable the Fund to evaluate the performance of its Real Return Portfolio. 1. Quarterly Report. The fund sponsors will submit to the Council, via Staff, and Consultant(s)

its quarterly report within 60 days of the end of each quarter (except for the fourth quarter of each year). The report will record the performance for the relevant measurement periods, the performance relative to indices and benchmarks, cash flow information, fees, costs and market value. The Consultant(s) shall report any major issues to the Council, Investment Committee and Staff.

2. Quarterly Performance Data. The fund sponsors will also submit its quarterly performance data to the Council, via Staff, and Consultant(s) within 75 days of the end of each quarter. The Consultant(s) relies on the timely submission of this data by the fund sponsors in order to deliver its performance report to the Council, Investment Committee and Staff.

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3. Audited Annual Financial Statements. Each fund sponsor will submit a consolidated annual financial statement to the Council, via Staff, and Consultant(s) within 120 days of the end of the fourth quarter.

4. Performance Measurement and Portfolio Analytics Report. Following each quarter, the Consultant(s) shall submit to the Council and Staff the Performance Measurement Report (“PMR”), which contains quantitative performance of the Real Return Portfolio using data as provided by the fund sponsors.

The Consultant(s) will submit its portfolio management report to the Council, Investment Committee, and Staff within 90 days of the end of the quarter or 10 days after last manager submission (latter of). It will evaluate the compliance of the Real Return Portfolio with the Policy and Investment Plans; the performance of the Real Return Portfolio, its fund sponsors, and the investments for the relevant measurement periods and relative to indices and benchmarks; a statement of significant initiatives being undertaken; a statement of relevant and capital market information; and a statement of significant events in the Real Return program.

In practice, if there is more than one Consultant responsible for a number of elements of the Real Return portfolio, Staff may combine the Consultants reports to produce a Real Return Report for the Council.

5. Other Reports. The Consultant(s) and fund sponsors shall provide, in a timely manner, such other reports as the SIC may determine useful to the administration of the Real Return Portfolio. The fund sponsors shall provide reports and other disclosures as set forth by the documents governing SIC’s investment with each fund sponsor.

NEW MEXICO


Infrastructure Portfolio Investment Policy Statement

June 2012

The Townsend Group Cleveland San Francisco Hong Kong London

Table of Contents Page I. Objectives of the Infrastructure Program ........................................................................... 1 A. Role of the Infrastructure Portfolio ......................................................................... 1

B. Portfolio Allocation ................................................................................................. 1 C. Performance Benchmark ........................................................................................ 2

II. Portfolio Construction......................................................................................................... 2

A. Strategic Portfolio ................................................................................................... 3 B. Tactical Portfolio ..................................................................................................... 3 C. Program Implementation ....................................................................................... 3

D. Risk Management ................................................................................................... 4 1. Asset Type Diversification ........................................................................... 4 2. Geographic Diversification .......................................................................... 5 3. Size of Investments ..................................................................................... 5

4. Manager Concentration .............................................................................. 5 5. Leverage ...................................................................................................... 5

III. Portfolio Oversight .............................................................................................................. 5

A. Roles and Responsibilities ....................................................................................... 5 1. Council/Investment Committee ................................................................. 6 2. Staff ............................................................................................................. 6 3. Fund Sponsor .............................................................................................. 7 4. Consultant ................................................................................................... 7

B. Reporting................................................................................................................. 8 1. Quarterly Report ........................................................................................ 8 2. Quarterly Performance Data ...................................................................... 8 3 Audited Annual Financial Statements ......................................................... 9 4. Performance Measurement and Portfolio Analytics Report ...................... 9 5. Other Reports ............................................................................................. 9

- 1 -

The New Mexico State Investment Council (the “SIC”) has been authorized to allocate a portion of the New Mexico Land Grant Permanent Fund and the Severance Tax Permanent Fund (collectively the “Funds”) to a selection of tangible assets that are designed to provide the total portfolio with alternative sources of investment return (to stocks and bonds) as well as inflation protection, collectively referred to as “real return” assets. This Investment Policy sets forth the objectives, investment guidelines and processes governing the SIC Real Return Portfolio dedicated to infrastructure assets (the “Infrastructure Portfolio” or “Portfolio”). This Investment Policy also sets forth the purpose of the Infrastructure Portfolio allocation and the standard of care governing the management of the Portfolio. It additionally describes the roles and responsibilities of the Council, the SIC’s investment staff (the “Staff”), and the SIC’s external consultants (the “Consultants”) relating to the oversight and management of the Infrastructure Portfolio. I. OBJECTIVES OF THE INFRASTRUCTURE PROGRAM

A. Role of Infrastructure Portfolio

The primary objectives of the SIC’s Infrastructure Portfolio, in order of priority, are as follows:

1. Generate stable, reliable income;

2. Produce an attractive risk-adjusted return;

3. Provide an inflation hedge; and

4. Preserve capital

All infrastructure investments shall be subject to the prudent investor rule as codified in the New Mexico statutes which stipulates that a fiduciary's performance is measured on the performance of the entire portfolio rather than individual investments. Further, all investments shall comply with applicable local, state, and federal statutes.

B. Portfolio Allocation

The Funds’ long term target allocation to Real Assets is 6% with a permitted range of +/- 2%. Infrastructure investments are expected to account for 30% of the Real Assets allocation (+/- 5%), or 1.8% (+/- 0.3%) of combined Fund assets.

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C. Performance Benchmark

The Funds’ objectives are to generate a total return, net of investment management fees, of 6.5% to 7.0% from infrastructure with an expected standard deviation of 10-12% per annum. For reporting purposes the Portfolio will be compared to a real return benchmark of 3% plus inflation (as measured by the United Stated Bureau of labor Statistics Consumer Price Index for all Urban Consumers: CPI-U) as measured over a full market cycle or 5 years (greater of).

II. PORTFOLIO CONSTRUCTION

Portfolio construction will be driven by (i) broad allocation ranges to strategic and tactical infrastructure investments and (ii) market opportunities and conditions. The Portfolio will target strategic infrastructure projects as well as tactical non-core projects in accordance with the following guidelines (as measured by gross market value of the underlying portfolio investments): Allocation Ranges: Strategic infrastructure investments: 60 - 100% Tactical infrastructure investments: 0 – 40%

Publicly traded infrastructure investments 0 – 10% Non-US, non-Organization for Economic Co-operation and Development (OECD) infrastructure investments 0 – 10%

The Council recognizes that pure strategic exposure is difficult to execute outside of direct investments and most managers will pursue both strategic as well as tactical investments within their portfolios. SIC staff and the Consultant will assign a category to each underlying investments within a manager’s portfolio for the

Real Estate10%

Inflation-

Related 4%

Real Assets6%

Absolute

Return8%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

Real Return, Real Estate and Absolute Return Portfolio

$ in

Mill

ion

s

Timber

30%

Infrastructure30%

Energy

30%

Commodities

10%

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

Real Assets Portfolio

$ in

Mill

ion

s

Long Term Target Allocations

- 3 -

purpose of monitoring SIC’s exposures. In an effort to comply with the permissible ranges, a manager will not be considered for inclusion in the Infrastructure Portfolio if the proposed commitment would result in an overexposure to tactical investments at the manager’s stated maximum allocation.

A. Strategic Portfolio

The lowest risk class of infrastructure that will attain the objectives of the Real Return Program are assets that operate in an environment of limited competition as a result of natural monopolies, government regulation or concessions and generate a reliable income stream with relatively low asset value volatility. These are defined as “strategic” infrastructure investments. These investments are institutional quality assets that benefit from high barriers to entry, economies of scale, inelastic demand for the product or service being provided, and are generally long in duration (10+ years). These assets offer relatively high current income returns (long-term average yield of 6%-8% gross), and as a result, a greater predictability of total returns. The income component typically represents a significant majority of the expected total return for strategic investments. These investments are of comparatively lower risk and provide a stable foundation for the SIC’s Infrastructure Portfolio.

B. Tactical Portfolio The tactical portfolio will consist of a wide range of investments representing differing levels of risk and return derived from the underlying assets. Elevated risks in the tactical portfolio as compared with the strategic portfolio may include construction risk; operational and management risk; leverage or interest rate risk; refinancing risk, regulatory risk; environmental risk; and social or political risk. The tactical component of the Portfolio can be further divided into greenfield construction, development or early stage ramp-up strategies and listed equities. Consistent with the SIC’s desired risk profile, the portfolio will target a range of 0 to 40% for these tactical investments in the Infrastructure Portfolio.


The Funds shall acquire exposure to infrastructure assets primarily through commingled fund vehicles (open end and closed end) and, to a lesser extent, joint venture limited partnerships and separate accounts. The appropriate structure shall be determined by the Staff and Consultant in developing and managing the performance and liquidity of the Infrastructure Portfolio. Commingled fund investments by nature are discretionary relationships, where the sponsor or manager of the fund has ultimate control over the investment decision-

- 4 -

making process and the investor typically has limited rights with respect to the management of the commingled fund. The term for a traditional commingled fund in the infrastructure universe ranges from 10 to 20 years, exclusive of extension options. Contract negotiations with managers considered for inclusion in the Infrastructure Portfolio will include side letter language that requires the manager to notify SIC in advance of any prospective infrastructure acquisitions in the state of New Mexico. The table below includes all of the permissible vehicles for the Infrastructure Portfolio.

Infrastructure Portfolio Implementation

Global Opportunity Set (Developed and Emerging Markets)

Interest in a real property asset (e.g. toll road or parking garage) and/or interest in owning and operating entity (e.g. utility company)


Private Fund Direct / Indirect Listed Companies REITs


Open-End

- Private secured debt

- Co-invest interest - Commingled

funds - Separate account

- Engaged in Infrastructure business

- Publicly Traded - Privately Traded

D. Risk Management

Consultant and Staff shall monitor compliance with risk management policies quarterly through the performance measurement process.

1. Asset Type Diversification

The portfolio will not have definitive constraints on asset diversification. The Infrastructure Portfolio will seek diversification by asset type, revenue drivers, and geography in an effort to mitigate portfolio volatility. The SIC recognizes that infrastructure assets are relatively illiquid and properties are not of uniform size and quality; furthermore, the program will be implemented primarily through vehicles where SIC has limited control over the asset type distribution other than through selection of the strategy itself.

- 5 -

2. Geographic Diversification

The Infrastructure Portfolio is intended to be diversified globally. A majority of the assets will be located in the developed economies around the world (generally, those member nations in the OECD); however, investments in emerging economies will be permitted, provided that the combined total exposure to non-US, non-OECD regions remain below 10% of the Infrastructure Portfolio (measured by market value exposure).

3. Size of Investments

The Fund does not want the failure of a single investment to have a significant or material impact on the performance of the Infrastructure Portfolio. In order to mitigate this risk, the amount of equity that may be invested in a single investment is limited to no more than 25% of the total Infrastructure Portfolio determined at the time of initial investment.

4. Manager Concentration

The Fund does not want to have excessive exposure to any individual manager/fund sponsor or its affiliated entities. As a result, the Fund will limit a single fund sponsor to managing no more than 20% of the total combined Real Assets + Real Estate Programs (by commitment).

5. Leverage

The use of leverage by fund sponsors will be monitored by the SIC Staff and Consultant on a quarterly basis to mitigate imprudent risks. The Infrastructure Portfolio leverage in aggregate is not intended to exceed 75% (by market value of debt and equity) at any quarter end measurement date. To ensure compliance with this limitation, no manger may be selected for the portfolio if the addition of the commitment at maximum permissible leverage would cause the Infrastructure Portfolio to exceed this limitation.

III. PORTFOLIO OVERSIGHT

The portfolio oversight procedures set forth below are divided into roles and responsibilities, reporting and search procedures. A. Roles and Responsibilities

- 6 -

The Infrastructure Portfolio, as a component of the Real Return Portfolio, will be planned, implemented and monitored through the coordinated efforts of the Council/Investment Committee, Staff, fund sponsors, and Consultant. The description of the major responsibilities of each participant is set forth below. 1. Council/Investment Committee

The role of the Council/Investment Committee is to ensure that the assets of the Funds are effectively managed in accordance with the laws of the State of New Mexico and the Investment Objectives and Policies of the Council. The responsibilities of the Council/Investment Committee include:

Establish the objectives and risk management policies for the Infrastructure Portfolio. It will perform this role by reviewing and approving, or amending and approving, the Infrastructure Investment Policy submitted by the Consultant before or during the first quarter of the year;

Review and approve, or amend and approve, the Annual Investment Plan for Infrastructure before or during the first quarter of the year. During the fourth quarter of the year, the Council/Investment Committee will review the Annual Investment Plan for its appropriateness and to identify any desired changes;

Select, retain and remove the fund sponsors and any other parties deemed appropriate. The Council/Investment Committee shall approve any capital allocations to individual fund sponsors;

Review the performance of the Infrastructure Portfolio, along with the fund sponsors, and its compliance with the objectives and policies established by the Council/Investment Committee. For this review, the Consultant will provide the Council/Investment Committee with quarterly Performance Measurement Reports;

Review and approve new investments;

2. Staff

The Staff’s role shall be to monitor the activities and work in conjunction with the Consultant to provide input to the Council/Investment Committee on all such matters concerning Infrastructure investments. The Staff’s monitoring responsibilities shall include the following:

- 7 -

Work with the Consultant to prepare the Infrastructure Investment Policy and Annual Investment Plan and submit these to the Council/Investment Committee for approval;

Work with the Consultant to monitor fund sponsors and issue Requests for

Proposals (RFPs) or Invitations to Bid (ITBs) for manager searches;

Work with the Consultant to develop specific capital allocation recommendations contained in the Annual Investment Plan and submit the same to the Council/Investment Committee for approval;

Prepare funding procedures and coordinate the receipt and distribution of

capital with the fund sponsors with the assistance of Consultant; and Monitor the performance of the Infrastructure Portfolio, its fund sponsors,

Consultant, and the compliance of the Program with the investment planning and management documents.

3. Fund Sponsors

Fundamentally, the fund sponsors will acquire, sell and manage infrastructure investments consistent with the respective documents governing the relationship between the Fund and fund sponsors and any other program documentation developed by Consultant and/or Staff and approved by the Council/Investment Committee. The fund sponsors shall provide the Council/Investment Committee, Staff and Consultant with such information as may be required to properly monitor the fund sponsors and its investments. A fund sponsor may serve the SIC as a fiduciary, or may serve as fiduciary to the pooled vehicles in which the SIC invests. Fund sponsors will perform this role in compliance with the investment planning and management documents created by the SIC. Each quarter the fund sponsors shall provide performance measurement data in the form and substance as required by the SIC and its Consultant and in compliance with this Infrastructure Investment Policy.

4. Consultant

The Staff has the active day-to-day role of managing the Infrastructure Portfolio. Thus, the Consultant shall perform the following services:

Work with Staff to prepare the Infrastructure Investment Policy and Annual Investment Plan and provide its review and recommendation to the Council/Investment Committee and Staff;

- 8 -

Work with Staff to perform searches for fund sponsors and other professionals, and report on such searches with Staff to the Council/Investment Committee as required under the applicable search policy;

Work with Staff to evaluate and recommend commingled fund, joint venture and separate account investments to the Council;

Prepare quarterly Performance Measurement Reports for relevant measurement periods for the Infrastructure Portfolio, its fund sponsors and investments; and

Review and monitor the investment activity in the Portfolio and the performance of the fund sponsors and the Portfolio.

The Consultant will promptly advise the Council/Investment Committee and Staff of any material changes in the capital markets that would influence its Infrastructure Investment Policy or Annual Investment Plan. The Consultant will inform the Council/Investment Committee and Staff of any significant changes with respect to the organizations of its fund sponsors that might influence the fund sponsors’ ability to continue to provide services to the Funds. The Consultant shall provide the Council/Investment Committee and Staff with relevant research materials as needed or as directed by the Council/Investment Committee or Staff. The Consultant will serve the New Mexico State Investment Council as a fiduciary to the Funds.

B. Reporting

The Council/Investment Committee and Staff will receive reports from its fund sponsors and Consultant that will contain information to enable the Fund to evaluate the performance of its Infrastructure Portfolio.

1. Quarterly Report. The fund sponsors will submit to Consultant and Staff its

quarterly report within 60 days of the end of each quarter (except for the fourth quarter of each year). The report will record the performance for the relevant measurement periods, the performance relative to indices and benchmarks, cash flow information, fees, costs and market value. The Consultant shall report any major issues to the Council/Investment Committee and Staff.

2. Quarterly Performance Data. The fund sponsors will also submit its quarterly

performance data to the Consultant within 75 days of the end of each quarter.

- 9 -

The Consultant relies on the timely submission of this data by the fund sponsors in order to deliver its performance report to the Council/Investment Committee and Staff.

3. Audited Annual Financial Statements. Each fund sponsor will submit a

consolidated annual financial statement to the Consultant and Staff within 120 days of the end of the fourth quarter.

4. Performance Measurement and Portfolio Analytics Report. Following each

quarter, the Consultant shall submit to the Staff the Performance Measurement Report (“PMR”), which contains quantitative performance of the Infrastructure Portfolio using data as provided by the fund sponsors.

The Consultant will submit its portfolio management report to Staff and Council/Investment Committee within 90 days of the end of the quarter or 10 days after last manager submission (latter of). It will evaluate the compliance of the Infrastructure Portfolio with the Policy and Investment Plans; the performance of the Infrastructure Portfolio, its fund sponsors, and the investments for the relevant measurement periods and relative to indices and benchmarks; a statement of significant initiatives being undertaken; a statement of relevant infrastructure and capital market information; and a statement of significant events in the real assets program.

5. Other Reports. The Consultant and fund sponsors shall provide, in a timely

manner, such other reports as the SIC may determine useful to the administration of the Infrastructure Portfolio. The fund sponsors shall provide reports and other disclosures as set forth by the documents governing SIC’s investment with each fund sponsor.

NEW MEXICO


Energy Portfolio Investment Policy Statement

March 2013

Table of Contents Page I. Objectives of the Energy Program ...................................................................................... 1 A. Role of the Energy Portfolio .................................................................................... 1

B. Portfolio Allocation .................................................................................................. 1 C. Performance Benchmark ........................................................................................ 2



D. Risk Management ................................................................................................... 5 1. Asset Type Diversification ........................................................................... 5 2. Energy Sector/Source Diversification ......................................................... 6 3. Energy and Resource Value Chain Diversification ...................................... 6 4. Geographic Diversification .......................................................................... 6 5. Size of Investments ..................................................................................... 7

6. Manager Concentration .............................................................................. 7 7. Leverage ...................................................................................................... 7


A. Roles and Responsibilities ....................................................................................... 7 1. Council and Investment Committee ........................................................... 8 2. Staff ............................................................................................................. 8 3. Fund Sponsors ............................................................................................. 9 4. Consultant ................................................................................................... 9

B. Reporting............................................................................................................... 10 1. Quarterly Report ...................................................................................... 10 2. Quarterly Performance Data .................................................................... 11 3 Audited Annual Financial Statements ....................................................... 11 4. Performance Measurement and Portfolio Analytics Report .................... 11 5. Other Reports ........................................................................................... 11

- 1 -

The New Mexico State Investment Council (the “SIC”) has been authorized to allocate a portion of the New Mexico Land Grant Permanent Fund and the Severance Tax Permanent Fund (collectively the “Funds”) to a selection of tangible assets that are designed to provide the total portfolio with alternative sources of investment return (to stocks and bonds) as well as inflation protection, collectively referred to as “real return” assets. This Investment Policy sets forth the objectives, investment guidelines and processes governing the SIC Real Return Portfolio dedicated to energy assets (the “Energy Portfolio” or “Portfolio”). This Investment Policy also sets forth the purpose of the Energy Portfolio allocation and the standard of care governing the management of the Portfolio. It additionally describes the roles and responsibilities of the Council, the SIC’s investment staff (the “Staff”), and the SIC’s external consultants (the “Consultants”) relating to the oversight and management of the Energy Portfolio. I. OBJECTIVES OF THE ENERGY PROGRAM

A. Role of Energy Portfolio

The primary objectives of the SIC’s Energy Portfolio, in order of priority, are as follows:

1. Produce an attractive risk-adjusted return; 2. Generate stable, reliable income; 3. Provide an inflation hedge; and 4. Preserve capital.

All energy investments shall be subject to the prudent investor rule as codified in the New Mexico statutes which stipulates that a fiduciary's performance is measured on the performance of the entire portfolio rather than individual investments. Further, all investments shall comply with applicable local, state, and federal statutes.


The Funds’ long term target allocation to Real Assets is 6% with a permitted range of +/- 2%. Energy investments are expected to account for 30% of the Real Assets allocation (+/- 5%), or 1.8% (+/- 0.3%) of combined Fund assets. The chart below shows the four main categories in the SIC Real Return portfolio, including Real Assets, as well as the four suballocations under Real Assets, including Energy.

- 2 -

SIC Real Return, Real Estate, Absolute Return Allocations


The Funds’ objectives are to generate a total return, net of investment management fees, of 6.5% to 7.0% from energy with an expected standard deviation of 10-12% per annum. For reporting purposes the Portfolio will be compared to a real return benchmark of 3% plus inflation (as measured by the United States Bureau of Labor Statistics Consumer Price Index for all Urban Consumers: CPI-U) as measured over a full market cycle or 5 years (greater of).


Portfolio construction will be driven by: (i) broad allocation ranges to strategic and tactical energy investments; and (ii) market opportunities and conditions. The Portfolio will target core strategic energy investments as well as tactical non-core investments in accordance with the guidelines in the table below (as measured by gross market value of the underlying portfolio investments).

Allocation Ranges These ranges will be achieved over time; however, as the portfolio is constructed investments may exceed these ranges. Allocations Ranges Strategic energy investments 60 - 100% Tactical energy investments 0 - 40% Publicly traded energy investments 0 - 10% Non-US, non-Organization for Economic Cooperation and Development (OECD) energy investments

0 - 10%

Absolute Return8%

Timberland30%

Real Estate10%

Infrastructure30%

Inflation-Related4%

Energy30%

Real Assets6%

Commodities 10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Real Return, Real Estate, and Absolute Return Portfolio Real Assets Portfolio


- 3 -

The Council recognizes that pure strategic exposure is difficult to execute outside of direct investments and most managers will pursue both strategic as well as tactical investments within their portfolios. SIC staff and the Consultant will assign a category to each underlying investment within a manager’s portfolio for the purpose of monitoring SIC’s exposures. In an effort to comply with the permissible ranges, a manager will not be considered for inclusion in the Energy Portfolio if the proposed commitment would result in an overexposure to tactical investments at the manager’s stated maximum allocation.


Strategic investments will comprise the Portfolio’s core exposure to energy with the objective to provide a meaningful portion of the total return from current income with the balance from capital appreciation. The strategic allocation will include, but not be exclusive to, investments in “midstream” energy assets and financing deals that typically involve one or more of the following: gathering, processing, storing, and/or transporting extracted raw energy sources; intermediate products; and/or consumable energy forms. These investments typically involve an ownership of, or some other claim on, the revenue stream generated from operations and/or sales, as well as participation in revenue growth and capital appreciation. The revenue streams may be guaranteed by contract or concession, or vary according to demand and other market factors.

The strategic allocation will also include: upstream hydrocarbon development not involving exploration where commodity price risk is substantially mitigated or hedged; power generation, transmission, and distribution that generally involves contracted cash flows; and renewables (such as wind, solar, and hydro power) that have contracted cash flows or otherwise benefit from regulatory or tariff support.

The strategic allocation will comprise energy investments that target total returns in the approximate range of 7% to 20% (gross), meaningful yields (e.g., at least 4%), and/or equity multiples in the 1.25 to 1.5 range. This risk-return profile represents investments that are of comparatively lower risk within the energy sector with respect to the existence, extractability, commercial viability of and demand for the energy source(s) and operation(s) involved. Investments in assets other than those enumerated above can be considered for the strategic allocation if they are generally consistent with this risk-return profile.

In addition to private funds and direct/indirect investment vehicles, investments in Master Limited Partnerships (MLPs) will be considered part of the strategic portfolio. MLPs typically target midstream energy assets and operations, including intra- and inter-state pipelines in particular, but also related infrastructure and facilities. MLPs typically provide a meaningful portion of their total return from current income.

- 4 -

B. Tactical Portfolio The tactical portfolio will consist of a range of investments representing levels of risk and return derived from the underlying assets that will be higher, individually and collectively, than the risk and/or returns targeted for the strategic portfolio. Elevated risks in the tactical portfolio as compared with the strategic portfolio may include one or more of the following: resource extraction and/or development risk; construction risk; operational and management risk; leverage or interest rate risk; commodity price risk, refinancing risk, regulatory risk; environmental risk; and social or political risk. The tactical allocation will include, but not be exclusive to, investments in “upstream” energy assets and financing deals that typically involve one or more of the following: exploration; land and resource rights acquisition; extraction and development of energy resources; and early-stage or new production, processing, and transportation facilities and infrastructure. The tactical allocation will comprise energy investments that target total returns in the approximate range of 15% to 25% (gross), and/or equity multiples at 2.0 or higher. Investments in the tactical portfolio will be expected to generate the majority of their total returns from capital appreciation, with only a small or no current income (yield) component. Midstream investments, as generally targeted for the strategic allocation, will be instead considered for the tactical allocation if they are more consistent with the tactical portfolio’s higher risk-return profile. The tactical component would also include investments in publicly traded equities.


The Funds shall acquire exposure to energy assets primarily through commingled fund vehicles (open end and closed end) and, to a lesser extent, joint venture limited partnerships, separate accounts, and publicly traded securities. The appropriate exposure vehicles shall be determined by the Council, Staff, and Consultant in developing and managing the performance and liquidity of the Energy Portfolio. Commingled fund investments by nature are discretionary relationships, where the sponsor or manager of the fund has ultimate control over the investment decision-making process and the investor typically has limited rights with respect to the management of the commingled fund. The term for a traditional commingled fund in the energy universe ranges from 10 to 12 years, exclusive of extension options. Contract negotiations with managers considered for inclusion in the Energy Portfolio will include side letter language that requires the manager to notify SIC at the earliest public announcement of any prospective energy acquisitions in the state of New Mexico.

- 5 -

The table below includes all of the permissible vehicles for the Energy Portfolio.

Energy Portfolio Implementation Global Opportunity Set (Developed and Emerging Markets)

Interest in a real property asset (e.g. pipelines and processing facilities), interest in owning and operating entity (e.g. gas-fired power plant), and/or providing financing to energy

development and operations. Permitted Investment Vehicles

Private Fund Direct/Indirect Listed Companies Master Limited Partnerships (MLPs)

• Unlisted • Closed-End or

Open-End

• Private secured debt

• Co-invest interest

• Commingled funds

• Separate account

• Engaged in Energy business

• Publicly Traded • Privately Traded

D. Risk Management

Consultant and Staff shall monitor compliance with risk management policies quarterly through the performance measurement process, and periodically report to the Council on the policy items below, as provided for under Section III.B.


The portfolio will not have definitive constraints on asset diversification, except as provided by the broad allocation ranges established above for overall Portfolio Construction. The Energy Portfolio will seek diversification by asset type, financial interest in real property or a company’s capital structure, and revenue drivers, in an effort to mitigate portfolio volatility. The SIC recognizes that energy assets are relatively illiquid and properties are not of uniform size and quality; furthermore, the program will be implemented primarily through vehicles where the SIC has limited control over the asset type distribution other than through selection of the strategy itself. While it is expected there will be some overlap in the types of individual assets held by investments in the Energy and Infrastructure Portfolios (covered under a separate policy), there are clear differences in the mandates and focus of the funds that will be considered for each portfolio, respectively. Energy investments will target opportunities related to oil, natural gas, electricity, coal, renewables, and other energy-related resource extraction (e.g., mining)

- 6 -

and transportation (e.g., tankers) assets and activities. Infrastructure investments may target similar energy assets, depending on the sponsor’s strategy, but these will be part of a broader focus that also will include assets in several, if not all, of the following sectors: transportation (e.g., airports, ports, freight rail, toll roads); water supply/treatment; waste management; and social infrastructure (e.g., hospitals, schools). SIC Staff and the Consultant will monitor the total and sub-sector energy exposures in the Infrastructure Portfolio in categories comparable to those developed for the Energy portfolio to understand and measure the exposure to energy sectors across the entire Real Assets portfolio.

2. Energy Sector/Source Diversification

The portfolio will not have definitive constraints or targets for diversification by energy sector or source. The Energy Portfolio is intended to be diversified among such sectors and sources including, but not limited to oil, natural gas, processed oil and gas products, coal, other mined or extracted energy sources, power, and renewables, as is possible through selection of investment sponsors and as market opportunities permit.

3. Energy and Resource Value Chain Diversification

The portfolio will not have definitive constraints or targets for diversification by the position of an investment, in whole or in part, along the energy and resource value chain, except as dictated by the overall allocation ranges established for Portfolio Construction, with respect in particular to strategic and tactical allocations. The Energy Portfolio is intended to be diversified among major positions on the energy and resource value chain including, as possible through the selection of investment sponsors and as market opportunities permit: upstream (e.g., reserve-based exploration, acquisition, development, and production); midstream (e.g., infrastructure, gathering systems, pipelines, processing facilities, transportation, and related service industries); and downstream (e.g., power plants, and energy distribution).


The Energy Portfolio is intended to be diversified globally. A majority of the assets will be located in the developed economies around the world (generally, those member nations in the OECD); however, investments in emerging economies will be permitted, provided that the combined total exposure to non-US, non-OECD regions remain below 10% of the Energy Portfolio (measured by market value exposure).

- 7 -


The Fund does not want the failure of a single investment to have a significant or material impact on the performance of the Energy Portfolio. In order to mitigate this risk, the amount of equity that may be invested in a single investment is limited to no more than 35% of the total Energy Portfolio determined at the time of initial investment. “Single investment” is defined as any single stand-alone investment made, or any single investment within a commingled investment vehicle. Commingled investment vehicles, such as open-end or closed-end funds, partnerships and other investment vehicles which hold multiple investments are considered multi-investment vehicles, and the aggregation of the underlying investments within them are not considered a “single investment”.



7. Leverage

The use of leverage by fund sponsors will be monitored by the SIC Staff and Consultant on a quarterly basis to mitigate imprudent risks. The Energy Portfolio leverage in aggregate is not intended to exceed 75% (by market value of debt and equity) at any quarter end measurement date. To ensure compliance with this limitation, no manager may be selected for the portfolio if the addition of the commitment at maximum permissible leverage would cause the Energy Portfolio to exceed this limitation.



The Energy Portfolio, as a component of the Real Return Portfolio, will be planned, implemented and monitored under the oversight of the full Council, with the coordinated support of the Investment Committee, Staff, fund sponsors, and Consultant. The description of the major responsibilities of each participant is set forth below.

- 8 -

1. Council and Investment Committee

The role of the Council is to ensure that the assets of the Funds are effectively managed in accordance with the laws of the State of New Mexico and the Investment Objectives and Policies of the Council. The Investment Committee will typically review investment materials and recommendations prior to advancement to the full Council, but final review, consent, and approval authority is vested in the Council. The responsibilities of the Council and Investment Committee include those listed below. • Establish the objectives and risk management policies for the Energy

Portfolio. The Council will perform this role by reviewing and approving, or amending and approving, the Energy Investment Policy submitted by the Consultant before or during the first quarter of the year.

• Review and approve, or amend and approve, the Annual Investment Plan for Energy before or during the first quarter of the year. During the fourth quarter of the year, the Council and Investment Committee will review the Annual Investment Plan for its appropriateness and to identify any desired changes.

• Select, retain and remove the fund sponsors and any other parties

deemed appropriate. The Council and Investment Committee shall approve any capital allocations to individual fund sponsors.

• Review the performance of the Energy Portfolio, along with the fund

sponsors, and its compliance with the objectives and policies established by the Council and Investment Committee. For this review, the Consultant will provide the Council and Investment Committee with quarterly Performance Measurement Reports.

• Review and approve new investments.

2. Staff

The Staff reports to the Council and its role shall be to monitor the activities and work in conjunction with the Consultant to provide input to the Council and Investment Committee on all such matters concerning Energy investments. The Staff’s monitoring responsibilities shall include the following: • Work with the Consultant to prepare the Energy Investment Policy and

Annual Investment Plan and submit these to the Council and Investment Committee for approval;

- 9 -

• Work with the Consultant to monitor fund sponsors and issue Requests for Proposals (RFPs) or Invitations to Bid (ITBs) for manager searches;

• Work with the Consultant to develop specific capital allocation

recommendations contained in the Annual Investment Plan and submit the same to the Council and Investment Committee for approval;

• Prepare funding procedures and coordinate the receipt and distribution of

capital with the fund sponsors with the assistance of Consultant; and • Monitor the performance of the Energy Portfolio, its fund sponsors,


3. Fund Sponsors

Fundamentally, the fund sponsors will acquire, sell and manage energy investments consistent with the respective documents governing the relationship between the Fund and fund sponsors and any other program documentation developed by Consultant and/or Staff and approved by the Council and Investment Committee. The fund sponsors shall provide the Council and Investment Committee, Staff and Consultant with such information as may be required to properly monitor the fund sponsors and its investments. A fund sponsor may serve the SIC as a fiduciary, or may serve as fiduciary to the pooled vehicles in which the SIC invests. Fund sponsors will perform this role in compliance with the investment planning and management documents created by the SIC. Each quarter the fund sponsors shall provide performance measurement data in the form and substance as required by the SIC and its Consultant and in compliance with this Energy Investment Policy.

4. Consultant

While the Staff has the active day-to-day role of managing the Energy Portfolio, the Consultant works for and reports to the Council. Thus, the Consultant shall perform the following services: • Work with Staff to prepare the Energy Investment Policy and Annual

Investment Plan and provide the Consultant’s review and recommendation to the Council, Investment Committee, and Staff;

- 10 -

• Work with Staff to perform searches for fund sponsors and other professionals, and report on such searches with Staff to the Council and Investment Committee as required under the applicable search policy;

• Work with Staff to evaluate and recommend commingled fund, joint

venture and separate account investments to the Council and Investment Committee;

• Prepare quarterly Performance Measurement Reports for relevant

measurement periods for the Energy Portfolio, its fund sponsors and investments; and

• Review and monitor the investment activity in the Portfolio and the

performance of the fund sponsors and the Portfolio.

The Consultant will promptly advise the Council, Investment Committee and Staff of any material changes in the capital markets that would influence its Energy Investment Policy or Annual Investment Plan. The Consultant will inform the Council, Investment Committee and Staff of any significant changes with respect to the organizations of its fund sponsors that might influence the fund sponsors’ ability to continue to provide services to the Funds. The Consultant shall provide the Council, Investment Committee and Staff with relevant research materials as needed or as directed by the Council and Investment Committee or Staff. The Consultant will serve the New Mexico State Investment Council as a fiduciary to the Funds.

B. Reporting

The Council, Investment Committee, and Staff will receive reports from its fund sponsors and Consultant that will contain information to enable the Fund to evaluate the performance of its Energy Portfolio.

1. Quarterly Report

The fund sponsors will submit to Council, via Staff, and Consultant its quarterly report within 60 days of the end of each quarter (except for the fourth quarter of each year). The report will record the performance for the relevant measurement periods, the performance relative to indices and benchmarks, cash flow information, fees, costs and market value. The Consultant shall report any major issues to the Council, Investment Committee and Staff.

- 11 -

2. Quarterly Performance Data

The fund sponsors will also submit its quarterly performance data to the Council, via Staff, and Consultant within 75 days of the end of each quarter. The Consultant relies on the timely submission of this data by the fund sponsors in order to deliver its performance report to the Council, Investment Committee and Staff.

3. Audited Annual Financial Statements

Each fund sponsor will submit a consolidated annual financial statement to the Council, via Staff, and Consultant within 120 days of the end of the fourth quarter.

4. Performance Measurement and Portfolio Analytics Report

Following each quarter, the Consultant shall submit to the Council and Staff the Performance Measurement Report (“PMR”), which contains quantitative performance of the Energy Portfolio using data as provided by the fund sponsors.

The Consultant will submit its portfolio management report to the Council, Investment Committee, and Staff within 90 days of the end of the quarter or 10 days after last manager submission (latter of). It will evaluate the compliance of the Energy Portfolio with the Policy and Investment Plans; the performance of the Energy Portfolio, its fund sponsors, and the investments for the relevant measurement periods and relative to indices and benchmarks; a statement of significant initiatives being undertaken; a statement of relevant energy and capital market information; and a statement of significant events in the real assets program.

5. Other Reports

The Consultant and fund sponsors shall provide, in a timely manner, such other reports as the SIC may determine useful to the administration of the Energy Portfolio. The fund sponsors shall provide reports and other disclosures as set forth by the documents governing SIC’s investment with each fund sponsor.

NEW MEXICO


Timberland Portfolio Investment Policy Statement

June 2012


Table of Contents Page I. Objectives of the Timberland Program ............................................................................... 1

A. Role of the Timberland Portfolio ............................................................................ 1 B. Portfolio Allocation ................................................................................................. 1 C. Performance Benchmark ....................................................................................... 2



D. Risk Management ................................................................................................... 4 1. Geographic Diversification .......................................................................... 5 2. Species Type Diversification........................................................................ 5 3. Age Class and Product Type Diversification ................................................ 5 4. Size of Investments ..................................................................................... 6 5. Manager Concentration .............................................................................. 6 6. Leverage ...................................................................................................... 6


A. Roles and Responsibilities ....................................................................................... 6 1. Council/Investment Committee ................................................................. 7 2. Staff ............................................................................................................. 7 3. Fund Sponsors ............................................................................................. 8 4. Consultant ................................................................................................... 8

B. Reporting................................................................................................................. 9 1. Quarterly Report ........................................................................................ 9 2. Quarterly Performance Data ...................................................................... 9 3 Audited Annual Financial Statements ....................................................... 10 4. Performance Measurement and Portfolio Analytics Report .................... 10 5. Other Reports ........................................................................................... 10

- 1 -

The New Mexico State Investment Council (the “SIC”) has been authorized to allocate a portion of the New Mexico Land Grant Permanent Fund and the Severance Tax Permanent Fund (collectively the “Funds”) to a selection of tangible assets that are designed to provide the total portfolio with alternative sources of investment return (to stocks and bonds) as well as inflation protection, collectively referred to as “real return” assets. This Investment Policy sets forth the objectives, investment guidelines and processes governing the SIC Real Return Portfolio dedicated to Timberland assets (the “Timberland Portfolio” or “Portfolio”). This Investment Policy also sets forth the purpose of the Timberland Portfolio allocation and the standard of care governing the management of the Portfolio. It additionally describes the roles and responsibilities of the Council, the SIC’s investment staff (the “Staff”), and the SIC’s external consultants (the “Consultants”) relating to the oversight and management of the Timberland Portfolio. I. OBJECTIVES OF THE TIMBERLAND PROGRAM

A. Role of Timberland Portfolio

The primary objectives of the SIC’s Timberland Portfolio, in order of priority, are as follows:

1. Produce an attractive risk-adjusted return;

2. Provide an inflation hedge; and

3. Preserve capital

4. Generate stable, reliable income

All timber investments shall be subject to the prudent investor rule as codified in the New Mexico statutes which stipulates that a fiduciary's performance is measured on the performance of the entire portfolio rather than individual investments. Further, all investments shall comply with applicable local, state, and federal statutes.


The Funds’ long term target allocation to Real Assets is 6% with a permitted range of +/- 2%. Timber investments are expected to account for 30% of the Real Assets allocation (+/- 5%), or 1.8% (+/- 0.3%) of combined Fund assets.

- 2 -


The Fund’s objectives are to generate a total return of 6.5% to 7.0%, net of investment management fees, from its timber investments with a standard deviation of 8% - 10% per annum. For reporting purposes the portfolio will be compared to The NCREIF Timberland Index (“NTI”) over the short term and a real return benchmark of 3% plus inflation (as measured by the United Stated Bureau of labor Statistics Consumer Price Index for all Urban Consumers: CPI-U) as measured over a full market cycle or 5 years ( greater of).


Portfolio construction will be driven by (i) broad allocation ranges to strategic and tactical timber investments and (ii) market opportunities and conditions. The Portfolio will invest in both strategic timber investments as well as tactical non-core projects in accordance with the following guidelines (as measured by market value of underlying portfolio investments): Allocation Ranges: Strategic timberland investments: 60 - 100% Tactical timberland investments: 0 – 40% Publicly traded timberland investments: 0 – 10%

Non-US, non-Organization for Economic Co-operation and Development (OECD) timberland investments 0 – 10%

The Council recognizes that pure strategic exposure is difficult to execute outside of direct investments and most managers will pursue both strategic as well as tactical investments within their portfolios. SIC Staff and Consultant will assign a category to each underlying investments within a manager’s portfolio for the purpose of

Real Estate10%

Inflation-

Related 4%

Real Assets6%

Absolute

Return8%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500


$ in

Mill

ion

s

Timber

30%

Infrastructure30%

Energy

30%

Commodities

10%

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000


$ in

Mill

ion

s


- 3 -

monitoring SIC’s exposures. In an effort to comply with the permissible ranges, a manager will not be considered for inclusion in the Timber Portfolio if the proposed commitment would result in an overexposure to tactical investments at the manager’s stated maximum allocation.


Strategic timberland investments are characterized by and will target the following:

Developed timberland markets including Canada, United States, Australia, New Zealand, and Northern Europe;

Operating timberlands which include even age class distribution;

Operating timberlands which include species diversification;

Rely primarily on in-place infrastructure to achieve targeted returns; and

Are expected to derive only a small portion of the return from “higher and better use” (“HBU”) conversion or are expected to achieve the primary performance objective if HBU conversion is assigned no value.

These investments are expected to derive a significant portion, 60-70%, of their return from biological growth of the trees. Consequently, this aspect of the Portfolio will aid in the long-term returns and will be largely independent of the factors that determine returns for other assets classes; providing significant correlations benefits to the broad Fund Portfolio. Additional drivers of performance within strategic portfolio will include land prices as well as management strategies. As indicated, “higher and better use” tactics (e.g. transforming timberland into real estate developments) will be assigned no value and should not be contemplated as part of the proforma underwritten returns.

B. Tactical Portfolio

Tactical timberland investments are characterized by and will target the following:

May be located outside of the United States within emerging markets (South America, Africa, Eastern Europe, Russia, and Southeast Asia (including China);

May derive a higher proportion of their returns from HBU conversion;

May include per-merchantable timber or Greenfield development; and

May rely less on the use of existing infrastructure

Consistent with the SIC’s desired risk profile, the Portfolio will target a range of 0 to 40% for these tactical investments in the Timberland Portfolio.

- 4 -


The Funds shall acquire exposure to timberland assets primarily through commingled fund vehicles (open end and closed end) and, to a lesser extent, joint venture limited partnerships and separate accounts. Additionally, the Funds may utilize the public market for timber investment. The appropriate structure shall be determined by the Staff and Consultant in developing and managing the performance and liquidity of the timberland Portfolio. Commingled fund investments by nature are discretionary relationships, where the sponsor or manager of the fund has control over the investment decision-making process, and the investor typically has limited rights with respect to the management of the commingled fund. The term for a traditional commingled fund in the timber universe ranges from 7 to 10 years, exclusive of extension options.

The table below includes all of the permissible vehicles for the Timber Portfolio.

Timberland Portfolio Implementation


Interest in a parcel of timberland or collection of properties and/or interests in owning and operating entities




Open-End

- Separate Account - Operating

Companies

- Engaged in Timberland business


D. Risk Management

New Mexico SIC will diversify the Portfolio by investing with Timberland Investment Management Organization(s) (“TIMOs” or “TIMO”) that pursue different strategies to achieve efficient diversification by geography, species, age class, and product type. In addition, TIMOs that pursue both small and large tract transactions will be considered. Timberland tracts shall be comparable in quality to those held by other institutional investors or the forest products industry to enhance exit strategies as well as located within strong market areas, ideally with multiple wood using facilities of various types (e.g. sawmills, pulp mills, and collection yards).

- 5 -


The Portfolio will be diversified through global timberland investments. Investments in both domestic and international markets are permitted with relative proportion of each type at a given time to be determined based on the prevailing marketing conditions. The majority of the assets will be located in the US and other developed economies around the world. SIC recognizes that other countries offer attractive risk-adjusted returns due to favorable population demographics, strong economic growth prospects and strong domestic wood products converting and consuming economies. Given that tactical investments may be located in the emerging markets (e.g. Brazil), the emerging market exposure will be limited to a maximum of 40%. All timberland investments will be made with consideration of the SIC’s legislative constraints regarding international exposure.

2. Species Type Diversification

The Portfolio will be broadly diversified by species to facilitate exposure, thereby reducing risk, to a variety of product types and end markets. The Portfolio will primarily include both “softwood” and “hardwood” species groups and will also permit exposure to other varieties such as “non-traditional woody” and “non-woody” species.

Softwoods – generally are conifers such as pine, fir, hemlock, spruce, and cedar.

Hardwoods – generally are deciduous such as oak, maple, cherry, walnut, and elm.

Non-traditional woody – generally are tropical tree species such as bamboo and teak.

Non-woody – generally are grasses and underbrush such as switchgrass, used in producing cellulosic ethanol.

3. Age Class and Product Type Diversification

Product type diversification is often a subset of age class diversification, given that timberland develops into successive product classes at different stages of its life (e.g. emerging growth, established growth and mature growth). New Mexico SIC will diversify the Portfolio among the major product types (e.g. pulpwood, chip-n-saw and mature sawtimber) in order to minimize market risk or price dependence within a certain harvest period.

- 6 -


The Fund does not want the failure of a single investment to have a significant or material impact on the performance of the Timber Portfolio. In order to mitigate this risk, the amount of equity that may be invested in a single investment is limited to no more than 35% of the total Timber Portfolio determined at the time of initial investment.


The Fund does not want to have excessive exposure to any individual manager/fund sponsor or its affiliated entities. As a result, the Fund will limit a single fund sponsor to management of no more than 20% of the total combined Real Assets + Real Estate Programs (by commitment).

6. Leverage

The minority of timberland investments utilize leverage within their investment vehicles. The use of leverage by fund sponsors will be monitored by the SIC Staff and Consultant on a quarterly basis to mitigate imprudent risks. It is expected that the loan-to-value for the total Timberland Portfolio will not exceed 30% (by market value of debt and equity) at any quarter end measurement date. To ensure compliance with this limitation, no manger may be selected for the portfolio if the addition of the commitment at maximum permissible leverage would cause the Timber Portfolio to exceed this limitation.

The SIC recognizes that timberland assets are relatively illiquid and investment may not be of uniform size and quality; furthermore, the program will be implemented primarily through vehicles where SIC has limited control other than through selection of the strategy itself.



The Timberland Portfolio, as a component of the Real Return Portfolio, will be planned, implemented and monitored through the coordinated efforts of the

- 7 -

Council/Investment Committee, Staff, fund sponsors, and Consultant. The description of the major responsibilities of each participant is set forth below. 1. Council/Investment Committee


Establish the objectives and risk management policies for the Timberland Portfolio. It will perform this role by reviewing and approving, or amending and approving, the Timberland Investment Policy submitted by the Consultant before or during the first quarter of the year;

Review and approve, or amend and approve, the Annual Investment Plan for Timberland before or during the first quarter of the year. During the fourth quarter of the year, the Council/Investment Committee will review the Annual Investment Plan for its appropriateness and to identify any desired changes;


Review the performance of the Timberland Portfolio, along with the fund sponsors, and its compliance with the objectives and policies established by the Council/Investment Committee. For this review, the Consultant will provide the Council/Investment Committee with quarterly Performance Measurement Reports;


2. Staff

The Staff’s role shall be to monitor the activities and work in conjunction with the Consultant to provide input to the Council/Investment Committee on all such matters concerning timberland investments. The Staff’s monitoring responsibilities shall include the following: Work with the Consultant to prepare the Timberland Investment Policy and

annual Investment Plan and submit these to the Council/Investment Committee for approval;

- 8 -



Work with the Consultant to develop specific capital allocation recommendations contained in the Investment Plan submit the same to the Council/Investment Committee for approval;


capital with the fund sponsors with the assistance of Consultant; and Monitor the performance of the Timberland Portfolio, its fund sponsors,


3. Fund Sponsors

Fundamentally, the fund sponsors will acquire, sell and manage Timberland investments consistent with the respective documents governing the relationship between the Fund and fund sponsors and any other program documentation developed by Consultant and/or Staff and approved by the Council/Investment Committee. The fund sponsors shall provide the Council/Investment Committee, Staff and Consultant with such information as may be required to properly monitor the fund sponsors and its investments. A fund sponsor may serve the SIC as a fiduciary, or may serve as fiduciary to the pooled vehicles in which the SIC invests. Fund sponsors will perform this role in compliance with the investment planning and management documents created by the SIC. Each quarter the fund sponsors shall provide performance measurement data in the form and substance as required by the SIC and its’ Consultant and in compliance with this Timberland Investment Policy.

4. Consultant

The Staff has the active day-to-day role of managing the Timberland Portfolio. Thus, the Consultant shall perform the following services:

Work with Staff to prepare the Timberland Investment Policy and annual Investment Plan and provide its review and recommendation to the Council/Investment Committee and Staff;

Work with Staff to perform searches for fund sponsors and other professionals, and report on such searches with Staff to the

- 9 -

Council/Investment Committee as required under the applicable search policy;

Work with Staff to evaluate and recommend commingled fund, joint venture and separate account investments to the Council;

Prepare quarterly Performance Measurement Reports for relevant measurement periods for the Timberland Portfolio, its fund sponsors and investments; and


The Consultant will promptly advise the Council/Investment Committee and Staff of any material changes in the capital markets that would influence the Timberland Investment Policy or Annual Investment Plan. The Consultant will inform the Council/Investment Committee and Staff of any significant changes with respect to the organizations of its fund sponsors that might influence the fund sponsors’ ability to continue to provide services to the Funds. The Consultant shall provide the Council/Investment Committee and Staff with relevant research materials as needed or as directed by the Council/Investment Committee or Staff. The Consultant will serve the New Mexico State Investment Council as a fiduciary to the Funds.

B. Reporting

The Council/Investment Committee and Staff will receive reports from its fund sponsors and Consultant that will contain information to enable the Council to evaluate the performance of its Timberland Portfolio.




performance data to the Consultant within 75 days of the end of each quarter. The Consultant relies on the timely submission of this data by the fund sponsors in order to deliver its performance report to the Council/Investment Committee and Staff.

- 10 -




quarter, the Consultant shall submit to the Staff the Performance Measurement Report (“PMR”), which contains quantitative performance of the Timberland Portfolio using data as provided by the fund sponsors.

The Consultant will submit its portfolio management report to Staff and Council/Investment Committee within 90 days of the end of the quarter or 10 days after last manager submission (latter of). It will evaluate the compliance of the Timberland Portfolio with the Policy and Investment Plans; the performance of the Timberland Portfolio, its fund sponsors, and the investments for the relevant measurement periods and relative to indices and benchmarks; a statement of significant initiatives being undertaken; a statement of relevant Timberland and capital market information; and a statement of significant events in the real assets program.

5. Other Reports. The Consultant and fund sponsors shall provide, in a timely manner, such other reports as the SIC may determine useful to the administration of the Timberland Portfolio. The fund sponsors shall provide reports and other disclosures as set forth by the documents governing SIC’s investment with each fund sponsor.

NEW MEXICO


Farmland Portfolio Investment Policy Statement

June 2012


Table of Contents

Page I. Objectives of the Farmland Program .................................................................................. 1

A. Role of the Farmland Portfolio ............................................................................... 1 B. Portfolio Allocation ................................................................................................. 1 C. Performance Benchmark ........................................................................................ 2



D. Risk Management ................................................................................................... 4 1. Asset Type Diversification ........................................................................... 4 2. Geographic Diversification .......................................................................... 5 3. Size of Investments ..................................................................................... 5 4. Manager Concentration .............................................................................. 5 5. Leverage ...................................................................................................... 5


A. Roles and Responsibilities ....................................................................................... 6 1. Council/Investment Committee ................................................................. 6 2. Staff ............................................................................................................. 7 3. Fund Sponsor .............................................................................................. 7 4. Consultant ................................................................................................... 8

B. Reporting................................................................................................................. 9 1. Quarterly Report ........................................................................................ 9 2. Quarterly Performance Data ...................................................................... 9 3 Audited Annual Financial Statements ......................................................... 9 4. Performance Measurement and Portfolio Analytics Report ...................... 9 5. Other Reports ............................................................................................. 9

- 1 -

The New Mexico State Investment Council (the “SIC”) has been authorized to allocate a portion of the New Mexico Land Grant Permanent Fund and the Severance Tax Permanent Fund (collectively the “Funds”) to a selection of tangible assets that are designed to provide the total portfolio with alternative sources of investment return (to stocks and bonds) as well as inflation protection, collectively referred to as “Real Return” assets. This Investment Policy sets forth the objectives, investment guidelines and processes governing the SIC Real Return Portfolio dedicated to Farmland assets (the “Farmland Portfolio” or “Portfolio”). This Investment Policy also sets forth the purpose of the Farmland Portfolio allocation and the standard of care governing the management of the Portfolio. It additionally describes the roles and responsibilities of the Council, the SIC’s investment staff (the “Staff”), and the SIC’s external consultants (the “Consultants”) relating to the oversight and management of the Farmland Portfolio. I. OBJECTIVES OF THE FARMLAND PROGRAM

A. Role of Farmland Portfolio

The primary objectives of the SIC’s Farmland Portfolio, in order of priority, are as follows: 1. Produce an attractive risk-adjusted return;

2. Provide an inflation hedge;

3. Preserve capital; and

4. Generate stable, reliable income

All farmland investments shall be subject to the prudent investor rule as codified in the New Mexico statutes which stipulates that a fiduciary's performance is measured on the performance of the entire portfolio rather than individual investments. Further, all investments shall comply with applicable local, state, and federal statutes.


The Funds’ long term target allocation to Real Assets is 6% with a permitted range of +/- 2%. Farmland investments do not currently have a dedicated allocation with the Real Assets Program.

- 2 -


The Fund’s objectives are to generate a total return, net of investment management fees, of 6.5% to 7.0% from farmland with a standard deviation of 10% - 12% per annum. For reporting purposes the portfolio will be compared to the NCREIF Farmland Index (“NFI”) over the short term and a real return benchmark of 3% plus inflation (as measured by the United Stated Bureau of Labor Statistics Consumer Price Index for all Urban Consumers: CPI-U) as measured over a full market cycle or 5 years (greater of).


Portfolio construction will be driven by (i) broad allocation ranges to strategic and tactical farmland investments and (ii) market opportunities and conditions. The Portfolio will invest in both strategic farmland investments as well as tactical non-core projects in accordance with the following guidelines (as measured by market value of underlying portfolio investments): Allocation Ranges: Strategic farmland investments: 60 - 100% Tactical farmland investments: 0 – 40% Publicly traded farmland investments 0 – 10%

Non-US, non-Organization for Economic Co-operation and Development (OECD) farmland investments 0 – 10%

The Council recognizes that pure strategic exposure is difficult to execute outside of direct investments and most managers will pursue both strategic as well as tactical investments within their portfolios. SIC Staff and the Consultant will assign a category to each underlying investments within a manager’s portfolio for the

Real Estate10%

Inflation-

Related 4%

Real Assets6%

Absolute

Return8%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500


$ in

Mill

ion

s

Timber

30%

Infrastructure30%

Energy

30%

Commodities

10%

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000


$ in

Mill

ion

s


- 3 -

purpose of monitoring SIC’s exposures. In an effort to comply with the permissible ranges, a manager will not be considered for inclusion in the Farmland Portfolio if the proposed commitment would result in an overexposure to tactical investments at the manager’s stated maximum allocation.


Strategic investments will provide the Portfolio’s foundation exposure with the objective to provide a meaningful portion of the return from current income with more modest returns from appreciation. The strategic allocation will represent a majority of the Farmland Portfolio and will consist primarily of land assets leased to third party operators in order to generate stable income. The strategic portfolio will be diversified by input type (fuel, food or fiber), crop type (row vs. permanent crop), and geographic region as well as management style (leased vs. operating) to protect the portfolio from an overexposure to a single or highly correlated revenue source. The income component typically represents a significant majority of the expected total return for strategic investments. These investments are of comparatively lower risk and provide a stable foundation for the SIC’s Farmland Portfolio.

B. Tactical Portfolio

Tactical opportunities in farmland investing include but are not limited to: greenfield development (i.e. developing raw land to add capital value), developmental crops (i.e. non-income generating for the first several years), land leases that incorporate commodity risk or crop purchase contracts in lieu of cash rent, water rights, processing rights, farm equipment and value added crop handling, storage and processing facilities, and properties in non-OECD or emerging countries. Publicly traded companies engaged in agriculture (>50% of revenues derived from agricultural pursuits) may also be used up to a maximum of 10% of the total farmland allocation. Consistent with the SIC’s desired risk profile, the Portfolio will target a range of 0 to 40% for these tactical investments in the Farmland Portfolio.


The Funds may acquire exposure to farmland assets through commingled fund vehicles (open end and closed end) as well as joint venture limited partnerships and separate accounts. The appropriate structure shall be determined by the Staff and Consultant in developing and managing the performance and liquidity of the Farmland Portfolio.

- 4 -

Separate accounts offer the investor with the highest degree of control and customization and may also be the most cost effective implementation option. They may also be less diversified than a commingled option and will require more staff resources for oversight and monitoring. Conversely, the commingled fund investments by nature are discretionary relationships, where the sponsor or manager of the fund has control over the investment decision-making process, and the investor typically has limited rights with respect to the management of the commingled fund. The term for a traditional commingled fund in the farmland universe ranges from 7 to 10 years, exclusive of extension options. The table below includes all of the permissible vehicles for the Farmland Portfolio.

Farmland Portfolio Implementation


Own / Operate: Row Crops (harvested from soil) and Permanent Crops (grow on trees/vines)




Open-End

- Separate Account - Operating

Companies

- Engaged in Agriculture business

- ETF


D. Risk Management

Consultant and Staff shall monitor compliance with risk management policies quarterly through the performance measurement process.


The Farmland Portfolio will seek diversification by crop type in an effort to mitigate portfolio volatility. Crop type diversification may be broken down by input type (food, fuel or feed, supported by variant demand drivers), as well as permanent or row crop and growing seasons. The portfolio is intended to be biased towards row crops which are planted annually and represent lower risk as compared with permanent crops because the investor’s exposure is limited to a single year’s harvest. Permanent crops (almonds, apples and wine grapes,

- 5 -

for example) may be pursued tactically. These crops provide the opportunity for higher income returns but also exhibit more volatility.


The Farmland Portfolio is intended to be diversified globally in order to mitigate the risks from specific geographic characteristics such as climate, soil conditions, weather, water supply, economies, currencies, regulatory regimes, etc. A majority of the assets will be located in the developed economies around the world (generally, those member nations in the OECD) however, investments in emerging economies will be permitted, provided that the combined total exposure to non-US, non-OECD regions remains below 10% of the Farmland Portfolio. All farmland investments will be made with consideration to the SIC’s legislative constraints regarding the international exposure of the Total Portfolio.


The Fund does not want the failure of a single investment to have a significant or material impact on the performance of the Farmland Portfolio. In order to mitigate this risk, the amount of equity that may be invested in a single investment is limited to no more than 35% of the total Farmland Portfolio determined at the time of initial investment.



5. Leverage Farmland investments have historically involved only very modest utilization of leverage. Regardless, the use of leverage by fund sponsors will be monitored by the SIC Staff and Consultant on a quarterly basis to mitigate imprudent risks. It is expected that the loan to value for the total Farmland Portfolio will not exceed 50% (by market value of debt and equity) at any quarter end measurement date. To ensure compliance with this limitation, no manger may be selected for the portfolio if the addition of the commitment at maximum permissible leverage would cause the Farmland Portfolio to exceed this limitation.

- 6 -

The SIC recognizes that farmland assets are relatively illiquid and properties are not of uniform size and quality; furthermore, the program will be implemented primarily through vehicles where SIC has limited control other than through selection of the strategy itself.


The portfolio oversight procedures set forth below are divided into roles and responsibilities, reporting and search procedures A. Roles and Responsibilities

The Farmland Portfolio, as a component of the Real Return Portfolio, will be planned, implemented and monitored through the coordinated efforts of the Council/Investment Committee, Staff, fund sponsors, and Consultant. The description of the major responsibilities of each participant is set forth below. 1. Council/Investment Committee


Establish the objectives and risk management policies for the Farmland Portfolio. It will perform this role by reviewing and approving, or amending and approving, the Farmland Investment Policy submitted by the Staff and the Consultant before or during the first quarter of the year;

Review and approve, or amend and approve, the Annual Investment Plan for Farmland before or during the first quarter of the year. During the fourth quarter of the year, the Council/Investment Committee will review the Investment Plan for its appropriateness and to identify any desired changes;


Review the performance of the Farmland Portfolio, along with the fund sponsors, and its compliance with the objectives and policies established by the Council/Investment Committee. For this review, the Consultant

- 7 -

will provide the Council/Investment Committee with quarterly Performance Measurement Reports;


2. Staff

The Staff’s role shall be to monitor the activities and work in conjunction with the Consultant to provide input to the Council/Investment Committee on all such matters concerning Farmland investments. The Staff’s monitoring responsibilities shall include the following: Work with the Consultant to prepare the Farmland Investment Policy and

Annual Investment Plan and submit these to the Council/Investment Committee for approval;



Work with the Consultant to develop specific capital allocation recommendations contained in the Annual Investment Plan submit the same to the Council/Investment Committee for approval;


capital with the fund sponsors with the assistance of Consultant; and Monitor the performance of the Farmland Portfolio, its fund sponsors,


3. Fund Sponsors

Fundamentally, the fund sponsors will acquire, sell and manage farmland investments consistent with the respective documents governing the relationship between the Fund and fund sponsors and any other program documentation developed by Consultant and/or Staff and approved by the Council/Investment Committee. The fund sponsors shall provide the Council/Investment Committee, Staff and Consultant with such information as may be required to properly monitor the fund sponsors and its investments. A fund sponsor may serve the SIC as a fiduciary, or may serve as fiduciary to the pooled vehicles in which the SIC invests. Fund sponsors will perform this role in compliance with the investment planning and management documents

- 8 -

created by the SIC. Each quarter the fund sponsors shall provide performance measurement data in the form and substance as required by the SIC and its’ Consultant and in compliance with this Farmland Investment Policy.

4. Consultant

The Staff has the active day-to-day role of managing the Farmland Portfolio. Thus, the Consultant shall perform the following services:

Work with the Staff to prepare the Farmland Investment Policy and annual Investment Plan and provide its review and recommendation to the Council/Investment Committee and Staff;

Work with the Staff to perform searches for fund sponsors and other professionals, and report on such searches with Staff to the Council/Investment Committee as required under the applicable search policy;

Work with the Staff to evaluate and recommend commingled fund, joint venture and separate account investments to the Council;

Prepare quarterly Performance Measurement Reports for relevant measurement periods for the Farmland Portfolio, its fund sponsors and investments; and


The Consultant will promptly advise the Council/Investment Committee and Staff of any material changes in the capital markets that would influence the Farmland Investment Policy or Annual Investment Plan. The Consultant will inform the Council/Investment Committee and Staff of any significant changes with respect to the organizations of its fund sponsors that might influence the fund sponsors’ ability to continue to provide services to the Funds. The Consultant shall provide the Council/Investment Committee and Staff with relevant research materials as needed or as directed by the Council/Investment Committee or Staff. The Consultant will serve the New Mexico State Investment Council as a fiduciary to the Funds.

- 9 -

B. Reporting The Council/Investment Committee and Staff will receive reports from its fund

sponsors and Consultant that will contain information to enable the Fund to evaluate the performance of its Farmland Portfolio.




performance data to the Consultant within 75 days of the end of each quarter. The Consultant relies on the timely submission of this data by the fund sponsors in order to deliver its performance report to the Council/Investment Committee and Staff.




quarter, the Consultant shall submit to the Staff the Performance Measurement Report (“PMR”), which contains quantitative performance of the Farmland Portfolio using data as provided by the fund sponsors. The Consultant will submit its Portfolio Measurement Report to Staff and Council/Investment Committee within 90 days of the end of the quarter or 10 days after last manager submission (latter of). It will evaluate the compliance of the Farmland Portfolio with the Policy and Investment Plans; the performance of the Farmland Portfolio, its fund sponsors, and the investments for the relevant measurement periods and relative to indices and benchmarks; a statement of significant initiatives being undertaken; a statement of relevant farmland and capital market information; and a statement of significant events in the Real Assets program.

5. Other Reports. The Consultant and fund sponsors shall provide, in a timely

manner, such other reports as the SIC may determine useful to the administration of the Farmland Portfolio. The fund sponsors shall provide reports and other disclosures as set forth by the documents governing SIC’s investment with each fund sponsor.

Tab 3

3. Other Investment Matters: Investment Performance, Market Updates & Private Equity Reporting

a. 4Q Real estate performance review (Townsend)

b. 4Q 2013 National private equity performance review (LP Capital)

c. 4Q 2013 NMSIC Co-Investment Fund review (LP Capital)

d. 4Q 2013 New Mexico Private Equity Investment Program performance review (Sun

Mountain)

e. National private equity reporting Items (informational)

f. New Mexico Private Equity Investment Program reporting items (informational)

g. SIC performance report, TUCS, & monthly activity summary (Smith & RV Kuhns)

National Private Equity ProgramPerformance Update – Q4 2013

Presented to the Private Equity Investment Advisory Committee of

The New Mexico State Investment CouncilMay 8, 2014May 8, 2014

The following presentation relies on information provided by third parties including the

DISCLAIMER

The following presentation relies on information provided by third parties, including theNew Mexico State Investment Council (“NM SIC”), NM SIC’s General Partners and/orInvient, NM SIC’s data provider. The analysis included herein is dependent on suchinformation being complete and accurate in all material respects. Additionally, theanalysis utilizes forward-looking information that is derived in part from longer-termanalysis utilizes forward-looking information that is derived in part from longer-termhistorical data provided by third-party sources and considerable effort is made to useavailable information to forecast these returns and cash flow patterns.

In addition projected results if any are based on a number of assumptions including

DISCLAIMERIn addition, projected results, if any, are based on a number of assumptions, includingreturns, fund size, economic terms, targeted investment allocation and other factors. Dueto various risks and uncertainties, the projections in this presentation may differmaterially from actual results or change significantly if any one or more of theassumptions are changed As such undue reliance should not be placed on suchassumptions are changed. As such, undue reliance should not be placed on suchinformation.

Nothing herein is intended to serve as investment advice, a recommendation of anyparticular investment or type of investment a suggestion of merits of purchasing orparticular investment or type of investment, a suggestion of merits of purchasing orselling securities, or an invitation or inducement to engage in investment activity.

NM SIC 1

Quarter-over-quarter private equity performance increased with a net gain of $73 million

PERFORMANCE DASHBOARD

NM SIC National Private Equity Performance (by Investment Strategy)

As of December 31, 2013 ($ in millions)

# of Net Net Total Net Multiple1 Net IRR1

Strategy Funds Commit. Contributed Distributed NAV Value 12/31/2013 12/31/2012 12/31/2013 12/31/2012

A ti C it tActive Commitments

Venture Capital 19 257.4$ 250.3$ 148.1$ 79.5$ 227.6$ 0.91x 0.84x (1.8%) (3.3%)Growth Equity 15 344.3 220.6 119.8 176.2 296.0 1.34x 1.32x 8.0% 8.3%Buyout 69 2,064.1 1,408.2 1,220.1 966.3 2,186.4 1.55x 1.46x 11.9% 11.2%Special Situations 22 685.0 448.1 308.4 281.4 589.8 1.32x 1.28x 8.5% 8.3%

Sub-total 125 3,350.8$ 2,327.1$ 1,796.5$ 1,503.3$ 3,299.8$ 1.42x 1.34x 8.9% 8.0%

Liquidated Funds 15 74.9 69.0 151.1 - 151.1 2.19x 2.61x 28.0% 28.8%

Sold Funds 38 186.3 166.4 274.0 - 274.0 1.65x 1.65x 31.1% 31.1%

Grand Total 178 3,612.1$ 2,562.5$ 2,221.6$ 1,503.3$ 3,724.9$ 1.45x 1.39x 11.8% 11.4%

Source: Invient. 1 Performance since inception Cumulative Investment Performance


$3,000

$4,000

ash

Flo

ws

/ V

20%

30%

RR

$0

$1,000

$2,000

2006 2007 2008 2009 2010 2011 2012 Q4 2013

Cum

ulat

ive

Ca

NA

V

0%

10% Net

IR

NM SIC 2

®Source: Invient

Net Contributed NAV Net Distributed

Inception-to-date Net IRR

QUARTER-OVER-QUARTER PERFORMANCE

All investment strategies generated positive performance during the quarterg g p p g q In Q4 2013, Buyout funds generated a net gain of $44.6 million, or 61% of the total net gain

Venture capital, growth equity and special situations strategies also generated net gains

84 funds reported net gains compared to 27 funds reporting net lossesp g p p g

NM SIC Private Equity Portfolio - Quarterly NAV Changes


$1,750

$48.7$79.2

$73.2

$40.6 $113.2

$73.3$1,500

$1,459.9$1,502.7 $1,503.3

6/30/13 NAV Net Contributions

Net Distributions

Net Gain 9/30/13 NAV Net Contributions

Net Distributions

Net Gain 12/31/13 NAV$1,250

NM SIC 3

®

Source: Invient

DIVERSIFICATION: VINTAGE YEAR

The Program has exposure across multiple vintage years

More than 50% of exposure is in funds with vintage years 2008 or later as of December 31, 2013

Private equity strategy targets $500 million of commitments per year to six to eight managers

The SIC has approved four commitments totaling $350 million in 2014

Diversification and Pacing by Vintage Year - NM SIC National Private Equity Program Active Commitments

As of December 31, 2013 ($ in millions), ($ )

Pacing by Vintage Year Exposure by Vintage Year

$350.0

$400.0

$450.0

1997-200414%

201315%

$150.0

$200.0

$250.0

$300.0 20059%

200614%

201213%

$-

$50.0

$100.0 14%

200712%2008

9%

20096%2010

0%

20118%

NM SIC 4

Source: Invient. Does not include liquidated or sold funds. Exposure defined as net asset value plus unfunded commitments.

Vintage year defined by the first cash flow of the fund.

DIVERSIFICATION: STRATEGY

The portfolio is within strategy allocation targetsStrategy Allocation


Target Allocation NAV Unfunded Total ExposureStrategy Low High $ % $ % $ %Venture Capital 0% - 10% 79.5$ 5.3% 8.0$ 0.8% 87.4$ 3.4%Growth Equity 10% - 20% 176.2 11.7% 124.2 11.8% 300.3 11.8%Buyout 50% - 70% 966.3 64.3% 661.0 63.1% 1,627.3 63.8%Special Situations 15% - 25% 281.4 18.7% 255.2 24.3% 536.6 21.0%

Total 1,503.3$ 100.0% 1,048.3$ 100.0% 2,551.6$ 100.0%

Source: Data from Invient and target allocations from January 24, 2012 strategy presentation to NM SIC. Target allocation refers to portfolio's total exposure (NAV + Unfunded).

Diversification by Strategy - NM SIC National Private Equity Program Active Commitments

As of December 31, 2013

By Commitment By Exposure

Growth Equity

Special Situations

20%

Growth Equity

Special Situations

22%

Buyout62%

Venture Capital8%

Growth Equity10%

Buyout64%

Venture Capital3%

Growth Equity13%

NM SIC 5

Source: Invient. Does not include liquidated or sold funds. Exposure defined as net asset value plus unfunded commitments.

DIVERSIFICATION: GEOGRAPHY AND INDUSTRY

Portfolio is concentrated in North America and diversified across industries

Geographic diversification is based on the headquarters of the underlying portfolio companies

The portfolio is below target in Asia and Emerging Markets (target of 10% to 20%) and above target in North America (target of 60% to 70%)

The underlying companies are diversified across a number of industries, with consumer companies having the largest allocation, although 1% lower than during the prior quarter

There were no significant changes in diversification compared to last quarterUnderlying Portfolio Company Diversification (By Remaining Value)

As of December 31, 2013

Geography Industry

Asia + Emerging Markets

3%

Un-classified

5%Other

7%

Europe17%

5%

Consumer32%

I d t i l /

Information Technology

12%

7%

North America75%

Energy3%Financials

11%Healthcare14%

Industrials / Materials

21%

NM SIC 6

Source: Invient. Does not include liquidated or sold funds.

14%

Copyright © 2014 by LP Capital Advisors LLC.

New Mexico Private Equity Investment Program Q4 2013 Review May 2014

2

New Mexico Private Equity Investment Program Overview

• The New Mexico Private Equity Investment Program (“NMPEIP” or “Program”) was

established in 1993 to make investments into private equity funds which in turn invest into NM-based companies

• For many years the Program was managed as a differential rate (below market rate) program

• Since 2004, the Program has been managed with financial returns as the primary focus – Fiduciary-based approach with economic development benefits as a secondary consideration – “Prudent Investor” investment standard vs. differential rate investments

• Financial returns significantly improved since 20041

• With Sun Mountain as the Program Advisor no third party marketers or placement agents have been used and no placement fees have been paid

1 Source: Invient (SIC’s private equity record keeper); as of 12/31/13

3

NMPEIP Financial Performance Comparison 1993-2003 vs. 2004-Present

Metric 1993-2003 2004-Present Difference

Internal Rate of Return -18.2% 4.4% +22.6%

Since Inception Returns $-56.5M $35.4M $91.9M

Distributions to the SIC $5.0M $107.4M $102.4M

Non-Program Investment Into NM-based Companies

$0.5B $1.4B +180%

Source: Invient (SIC’s private equity record keeper) as of 9/30/13

Program focused on economic development

Program focused on financial returns Advisor - Sun Mountain Capital

4

• Program is in compliance with the statute – $252.8 million in net deployed capital versus a statutory cap of $401.4 million – Program’s net deployed capital represents 5.7% of the Severance Tax Permanent Fund (“STPF”), on

track to achieve the NMPEIP’s long term target allocation of 5.0% – Individual company ownership concentration levels are below statutory caps

• Program financial performance has improved since 2004

– Program IRR since inception has improved from -18.2% to -0.5% – NMPEIP investments have performed in line with national venture benchmarks

• Program funds and their portfolio companies continue to make progress

• Program impact on New Mexico is substantial

– 29 funds have received commitments and invested in 67 New Mexico-based companies – Capital multiplier of 6.5x has resulted in over $2.0 billion of capital invested into NM companies

NMPEIP Q4 2013 Update Summary

Source: Invient (SIC’s private equity record keeper); as of 12/31/13

5

NMPEIP Status Overview and Summary of Partnership Commitments All Fund Commitment Summary Commitment Funded Percent NM Investment Value ($) 2 Return 2 Fund as of 12/31/13 Vintage Dollars % of Fund To Date Funded Invest 1 Realized Unrealized 3 Total Multiple IRR LiquidatedARCH Venture Fund II, L.P. 1993 $1.2 3.9% $1.2 100.0% $67.1 $4.3 $0.0 $4.3 3.53x 44.8% YesARCH Venture Fund III, L.P. 1996 $4.0 3.7% $4.0 100.0% $0.0 $3.7 $0.1 $3.8 0.95x -0.8% In ProcessCVM Equity Fund V 1998 $3.0 2.6% $3.0 100.0% $1.1 $1.7 $0.0 $1.7 0.58x -6.1% YesMurphree Venture Partners IV, L.P. 1998 $4.0 13.8% $4.0 100.0% $4.9 $0.1 $0.0 $0.1 0.02x -71.8% YesTullis/Dickerson Capital Focus II, L.P.4 1998 $5.0 10.0% $5.0 100.0% $10.1 $2.4 $1.6 $4.0 0.79x -2.0% YesValley Ventures II, L.P. 1998 $3.0 50.0% $3.0 100.0% $18.4 $2.6 $0.0 $2.6 0.87x -1.6% YesVestor Partners, L.P. 1998 $2.5 24.0% $2.4 94.0% $0.0 $0.6 $0.0 $0.6 0.27x -16.4% YesInternational Venture Fund I, L.P. 2000 $5.0 30.0% $5.0 100.0% $9.6 $0.0 $1.5 $1.5 0.30x -9.9% In ProcessMurphree Venture Partners V, L.P. 2000 $3.0 20.0% $3.0 100.0% $2.2 $0.9 $2.0 $3.0 1.00x -0.5%Red River Ventures, L.P. 2000 $7.2 5.5% $7.2 100.0% $12.8 $3.6 $1.8 $5.4 0.76x -5.1%Tullis/Dickerson Capital Focus III, L.P.4 2001 $15.0 11.8% $15.0 100.0% $51.4 $13.3 $5.7 $18.9 1.26x 5.6%Wasatch Venture Fund III, LLC 2001 $8.7 12.4% $8.7 100.0% $41.3 $4.0 $3.3 $7.2 0.83x -3.3%Altira Technology Fund IV, L.P. 2002 $10.0 15.6% $10.0 100.0% $14.3 $14.1 $1.7 $15.8 1.58x 7.9%Blue Sage Capital, L.P. 2002 $10.0 6.9% $7.6 76.4% $10.0 $17.7 $11.5 $29.3 3.83x 23.3%ITU Ventures West I, L.P. 2002 $15.0 53.6% $15.0 100.0% $15.3 $5.9 $0.9 $6.9 0.47x -12.7% YesValley Ventures III, L.P. 2002 $6.7 15.0% $6.5 98.0% $14.9 $1.0 $0.9 $1.9 0.29x -18.1%New Mexico Co-Investment Partners, L.P.5 2003 $62.0 100.0% $62.0 100.0% $161.7 $10.0 $3.2 $13.2 0.21x -23.2%vSpring II, L.P.4 2003 $20.0 23.6% $20.0 100.0% $91.8 $0.0 $6.1 $6.1 0.31x -14.5%Flywheel I, L.P. 2004 $15.0 46.9% $15.0 100.0% $52.4 $8.0 $8.3 $16.2 1.08x 1.3%Verge I, L.P. 2004 $10.0 47.6% $10.0 100.0% $50.6 $2.5 $6.9 $9.4 0.94x -1.2%Wasatch New Mexico Fund, LLC 2004 $12.0 17.1% $12.0 100.0% $46.9 $0.0 $4.0 $4.0 0.34x -16.6%ITU Ventures III NM, L.P. 2005 $2.3 1.9% $2.3 100.0% $0.0 $0.1 $0.0 $0.1 0.04x -73.6% YesPsilos Group Partners IIIB, L.P. 2005 $15.0 5.0% $13.8 92.0% $28.8 $8.0 $12.1 $20.2 1.46x 8.9%Village Ventures Fund II-B, L.P. 2006 $15.0 10.7% $14.5 96.6% $3.2 $5.0 $27.0 $32.0 2.21x 17.9%NMSIC Co-Investment Fund, L.P. (Classic) 2007 $30.0 100.0% $25.0 83.3% $347.2 $0.5 $28.4 $28.9 1.15x 4.6%NMSIC Co-Investment Fund, L.P. (Focused) 2007 $62.5 100.0% $60.4 96.6% $780.6 $1.9 $70.7 $72.5 1.20x 4.3%vSpring III, L.P.4 2007 $15.0 9.9% $15.0 100.0% $18.0 $0.3 $10.7 $10.9 0.73x -7.4%EPIC Venture Fund IV, LLC 2008 $10.0 17.2% $7.7 77.0% $7.0 $0.0 $11.6 $11.7 1.49x 12.5%NMSIC Co-Investment Fund, L.P. (2013) 2013 $20.0 100.0% $7.0 34.8% $6.6 $0.0 $12.1 $12.2 1.70x N/AProgram Totals7 $392.1 11.1% $365.2 93.2% $1,868.3 $112.4 $231.9 $344.4 0.9x -0.5% 10 of 29Source: Invient reportingNotes:1) Includes both direct fund investments and caused to invest dollars into New Mexico companies. Sourced from Invient reporting, GP reporting and Sun Mountain Capital analysis

2) Investment Values and Return calculations based upon asset values from 12/31/13

3) Fair Market Value as determined by Fund GPs under FASB 157 as of the report date

4) Firm managing the fund has changed name: Tull is/Dickerson is now called Tull is Health Investors, vSpring is now called Signal Peak Capital

5) New Mexico Co-Investment Partners, L.P. data includes one SIC direct investment for reporting purposes

6) Total NMPEIP commitment as a percentage of combined fund sizes; excludes the co-investment funds

7) As of the reporting date, full reporting has not been received from Blue Sage Capital, New Mexico Co-Investment Partners, Wasatch New Mexico or Verge I

6

Unaudited Performance Data as of 12/31/13Number of Fund Commitments 29Capital Committed (Total) $392.1Capital Committed (Net of Dist.'s Received) $279.7

Capital Drawn $365.2% of Capital Committed (Total) 93.2%

Distributions Received $112.4% of Capital Drawn 30.8%

Outstanding Deployed Capital $252.8Outstanding Deployed Capital as % of STPF 5.7%

Portfolio Carrying Value $231.9Total Portfolio Value $344.3

% of Capital Drawn 94.3%

Portfolio Multiple of Invested Capital 0.9xPortfolio IRR -0.5%Note: Returns calculated using reported Carrying Values as of 12/31/13 and data provided by InvientSeverance Tax Permanent Fund ("STPF") currently $4,460.040 millionas of 12/31/13

6

NMPEIP Carrying Value Quarter Over Quarter

NM PEIP Changes in Q3 2013 Reported ValueEarly VC Later VC Buyout Total

Reported Valuation as of Q2 2013 $115.3 $73.9 $13.4 $202.6Contributions to General Partners $3.7 $0.2 $0.0 $3.9Distributions from General Partners ($0.1) ($5.3) $0.0 ($5.4)Change in Value $3.0 $15.0 $0.0 $18.0Reported Valuation as of Q3 2013 $121.9 $83.9 $13.4 $219.1Source: Invient reporting

NM PEIP Changes in Q4 2013 Reported ValueEarly VC Later VC Buyout Total

Reported Valuation as of Q3 2013 $121.9 $83.9 $13.4 $219.1Contributions to General Partners $3.4 $0.2 $0.0 $3.6Distributions from General Partners ($2.2) ($0.2) $0.0 ($2.4)Change in Value $11.1 $0.5 ($0.1) $11.6Reported Valuation as of Q4 2013 $134.2 $84.5 $13.3 $231.9Source: Invient reporting

7

Recent NMPEIP Vintages Tracking National Benchmarks

• Since 2004, performance has tracked national venture capital benchmarks

– 40% of vintages are above median and 80% are in the top three quartiles

2004-Present Vintage Cumulative 1st quartile: 20% 20% 2nd quartile: 20% 40% 3rd quartile: 40% 80% 4th quartile: 20% 100%

NMPEIP v National BenchmarksNMPEIP Cambridge Associates Thomson

Vintage Net IRR Quartile Quartile1993 44.8% Second First1994 N/A N/A N/A1995 N/A N/A N/A1996 (0.8%) Fourth Fourth1997 N/A N/A N/A1998 (20.7%) Fourth Fourth1999 N/A N/A N/A2000 (5.7%) Third Fourth2001 2.3% Second Second2002 (1.3%) Third Third2003 (20.5%) Fourth Fourth2004 (5.2%) Third Fourth2005 (1.2%) Third Third2006 17.9% First First2007 2.7% Fourth Third2008 12.5% Second Second2009 N/A N/A N/A2010 N/A N/A N/A2011 N/A N/A N/A2012 N/A N/A N/A

Source: Invient reporting (as of 12/31/13) and most recently available nationalbenchmarks (Cambridge Associates as of 9/30/13 and Thomson data as of 6/30/13)Note: No fund commitments were made in years labeled "N/A"

8

NMPEIP Activity Highlights

• Verge I – Verge made a distribution in Q4 2013 related to

the sale of ZTEC Instruments.

• Valley Ventures III

– Progress continued on liquidating the Fund’s remaining portfolio holdings.

• Blue Sage Capital – During 2013, Blue Sage Capital retired the Fund’s

remaining SBA leverage.

• International Venture Fund I

– At the end of 2013, IVF I entered into a liquidating trust to complete the dissolution of the Fund.

NMPEIP Funds New Mexico Portfolio Companies • Lumidigm

– Following the close of Q4 2013, Lumidigm was acquired by HID Global.

• xF Technologies – xF obtained all of the necessary building permits

for its Albuquerque-based pilot plant and began construction.

• Exagen Diagnostics – The company closed a significant new financing

round. The proceeds will be used to fund growth initiatives and sales force expansion.

• TriLumina – During Q4 2013, the Company was awarded a

$900,000 research grant by the Israel-U.S. Binational Industrial Research and Development Foundation (BIRD).

9

67 New Mexico Companies

New Mexico Companies as of 12/31/13Advent Solar Elisar Software MicroOptical Devices Skorpios TechnologiesAltaview Technologies Enerpulse MIOX Southwest Med TechAltela Entrada Nanocrystal SundropAmerican Clay Exagen Diagnostics NanoMR Surfect TechnologiesAmtech Figaro Noribachi TCI MedicalAspen Avionics Growstone Nuvita Teucrium TradingAvasca Holochip OnQueue Technologies TredAvisa Pharma Infantelligence Patchwork Systems TriLuminaBioreason InnovASIC Phase-I TruTouch TechnologiesBoomtime Intellicyt POSLavu VeraLightComet Solutions Introbotics Protalex Vertical PowerConsolidated Energy Iosil Energy ProtoHIT VibrantControlled Recovery JackRabbit Systems Puente Partners WellKeeperDesert Power Kinetisis Quasar xF TechnologiesDining Gift Services Lumidigm Respira Therapeutics Zia LaserEarthstone Mesofuel Seattle Fish Company ZTEC InstrumentsEclipse Aviation Metaphor Seclarity

Status KeyActive (39) Exited at a Gain (9) Exited at a Loss (19)

Note: NMPEIP participants and the SIC directly have invested in 65 New Mexico-based companies, with 2 additional companies funded by SIC National Program participants

10

Capital Invested by Sector: Active NMPEIP Program Sector Concentration

11

Significant Economic Impact NMPEIP Impact Summary as of 12/31/13Total Investment in New Mexico Portolio Companies

A) Investment by Funds with NMPEIP Participation $282,954,458B) External Investment Caused by Funds with NMPEIP Participation $1,852,944,997

Total VC Investment in NM Companies $2,143,331,454Investment Multiplier (B / A) 6.5x

Categorization of NM Portfolio CompaniesActive Companies 39 58.2%Companies Exited at a Gain 9 13.4%Companies Exited at a Loss 19 28.4%

Number of Companies funded 67 100.0%

NM Economic Impact Q4 2013NM Purchases $28,534,104NM Payroll $22,671,157NM Economic Impact $51,205,261

Total Current Full-Time Jobs 1,371Average Salary of Jobs Created $66,145Average Salary in New Mexico1 $40,905

Source: Survey of participating NMPEIP fund managers and NM companies1 Source: New Mexico wage and salary disbursements and total wage and salary employees from the U.S. Dept. of

Commerce, Bureau of Economic Analysis. Average determined by dividing disbursements by employees

12

Summary of Key Points

• Program is currently in compliance and is evaluating potential new commitments per the approved pacing plan

• Program financial returns are improving steadily – Since 2004, NMPEIP investments have performed in line with national benchmarks and have

produced a positive financial return for the NMSIC

• Program is having a significant positive impact on the New Mexico economy

13

Disclaimer

The preceding presentation relies on information provided by third parties, including the New Mexico State Investment Council (“NMSIC”), NMSIC’s General Partners and/or Invient, NMSIC’s data provider. The analysis included herein is dependent on such information being complete and accurate in all material respects. Additionally, analysis may utilize or involve forward-looking information that is derived in part from longer-term historical data provided by third-party sources. In addition, projected results, if any, are based on a number of assumptions, including returns, fund size, economic terms, targeted investment allocation and other factors. Due to various risks and uncertainties, the projections in this presentation may differ materially from actual results or change significantly if any one or more of the assumptions are changed. As such, undue reliance should not be placed on such information. Nothing herein is intended to serve as investment advice, a recommendation of any particular investment or type of investment, a suggestion of merits of purchasing or selling securities, or an invitation or inducement to engage in investment activity. This report is solely for the use of NMSIC. No part of it may be circulated, quoted, or reproduced without prior approval from Sun Mountain Capital Advisors or the New Mexico State Investment Council.

New Mexico State Investment CouncilInvestment Performance Analysis

Period Ended: March 31, 2014

General Market Commentary Land Grant Asset Allocation vs. Interim Target

*Severance Tax Asset Allocation vs. Interim TargetNMSIC Performance Attribution Summary

NMSIC Total Fund - Schedule of Investable Assets

Long-Term

Target (%)

AssetAllocation

($)

AssetAllocation

(%)

InterimTarget

(%)

Differences(%)

Land Grant Total Fund Composite 13,680,844,820 100.00 100.00 0.00

US Equity 4,881,466,277 35.68 35.00 0.68

Non-US Equity 1,866,068,994 13.64 15.00 -1.36

Fixed Income 3,124,071,493 22.84 20.00 2.84

Absolute Return 942,001,007 6.89 7.00 -0.11

Private Equity 1,228,234,965 8.98 10.00 -1.02

Real Estate 982,443,731 7.18 8.00 -0.82

Real Return 615,496,501 4.50 5.00 -0.50

Cash Equivalent 41,061,853 0.30 0.00 0.30

Federal Reserve chair Janet Yellen addressed the subpar U.S. job market, reassuringinvestors that interest rates would be kept low “for some time” after the Fed’s monthlybond purchases are phased out, which most expect by the end of 2014.Residents of Crimea voted overwhelmingly in favor of joining Russia after its localparliament called for a referendum decried foul by the West. Russia incurred sanctions onofficials, downward pressure on the ruble and further decreases in foreign investment.Equity markets posted mixed returns in March as the S&P 500 (Cap Wtd) Index returned0.84% and the MSCI EAFE (Net) Index returned -0.64%. Emerging markets returned3.07% as measured by the MSCI EM (Net) Index.The Barclays US Aggregate Bond Index returned -0.17% in March, outperforming theBarclays US Treasury Intermediate Term Index return of -0.41%.Absolute return strategies, as measured by the HFN FOF Multi-Strat Index, returned-0.69% for the month and 6.30% over the trailing one-year period.

Crude oil's price fell by 0.98% in March but has increased by 4.47% over one year.

100.0031.00

15.00

16.00

8.00

10.00

10.00

10.00

0.00

Long-Term

Target (%)

AssetAllocation

($)

AssetAllocation

(%)

InterimTarget

(%)

Differences(%)

Severance Tax Total Fund (Ex. ETI) Composite 4,256,942,944 100.00 100.00 0.00

US Equity 1,554,041,452 36.51 35.00 1.51

Non-US Equity 649,102,278 15.25 15.00 0.25

Fixed Income 956,565,993 22.47 20.00 2.47

Absolute Return 303,215,320 7.12 7.00 0.12

Private Equity 377,080,900 8.86 10.00 -1.14

Real Estate 260,568,503 6.12 8.00 -1.88

Real Return 138,448,227 3.25 5.00 -1.75

Cash Equivalent 17,920,272 0.42 0.00 0.42

The Land Grant Total Fund's relative underperformance over the last 3 years was

primarily driven by manager performance in equities, particularly US equities.

However, asset allocation positioning relative to the target allocation was favorable, as an

under allocation to non-US equity and real return proved helpful.

Over the last year portfolio positioning has deviated from the target allocation, as

residuals intended for other asset classes are temporarily held as fixed income.Despite that variance, strong value add by managers within US equity, fixed income, and

alternative assets led to overall outperformance by the Total Fund.T. Rowe Price LC Growth, Seizert, and Donald Smith provided the best relativeperformance, while the MFS Int'l, Templeton, BlackRock Emg, and DuPont have not

been able to add value since their inception late in 2013.

The Total Fund also benefitted from the timing of large transactions over the last year.

100.0031.00

15.00

16.00

8.00

10.00

10.00

10.00

0.00

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years

NMSIC Total Fund Composite 0.91 2.02 2.02 12.01 13.04 8.57 13.02 6.61

Land Grant Total Fund Composite 0.95 2.01 2.01 11.92 12.99 8.63 13.15 6.73

Land Grant Policy Index 0.70 1.82 1.82 11.62 12.31 9.42 15.72 6.60

Difference 0.25 0.19 0.19 0.30 0.68 -0.79 -2.57 0.13

Severance Tax Total Fund Composite 0.95 1.98 1.98 11.86 12.76 8.11 12.50 6.07

Severance Tax Policy Index 0.70 1.82 1.82 11.62 12.31 9.42 15.45 6.68

Difference 0.25 0.16 0.16 0.24 0.45 -1.31 -2.95 -0.61

Periods EndingBeginning

Market Value ($)Net

Cash Flow ($)Gain/Loss ($)

EndingMarket Value ($)

%Return

CYTD 18,751,981,477 20,163,501 379,312,864 19,151,457,842 2.02

New Mexico State Investment Council

As of March 31, 2014

Performance shown is gross of fees. Performance is annualized for periods greater than one year. Fiscal year ends June 30.*Severance Tax target allocation excludes economically targeted investments and the state private equity program.

Page 1

Allocation

MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011 2010 2009

NMSIC Total Fund Composite 19,151,457,842 100.00 0.91 2.02 2.02 12.01 13.04 8.57 13.02 6.61 16.26 14.26 -0.93 14.55 18.69

Land Grant Total Fund Composite 13,680,844,820 71.44 0.95 2.01 2.01 11.92 12.99 8.63 13.15 6.73 16.28 14.45 -0.87 14.44 19.30

Land Grant Policy Index 0.70 1.82 1.82 11.62 12.31 9.42 15.72 6.60 16.01 14.10 2.48 14.50 20.67

Difference 0.25 0.19 0.19 0.30 0.68 -0.79 -2.57 0.13 0.27 0.35 -3.35 -0.06 -1.37

Severance Tax Total Fund Composite 4,515,494,375 23.58 0.95 1.98 1.98 11.86 12.76 8.11 12.50 6.07 15.61 13.52 -0.39 12.82 18.59

Severance Tax Policy Index 0.70 1.82 1.82 11.62 12.31 9.42 15.45 6.68 16.01 14.10 2.48 14.71 18.61

Difference 0.25 0.16 0.16 0.24 0.45 -1.31 -2.95 -0.61 -0.40 -0.58 -2.87 -1.89 -0.02

NMSIC Global Equity Composite 9,570,757,495 49.97 0.17 1.15 1.15 17.52 18.86 9.67 18.59 8.05 27.18 16.32 -7.00 18.26 41.50

Global Equity Custom Index 0.63 1.46 1.46 17.82 18.66 11.15 20.08 8.05 26.81 16.93 -3.84 15.57 34.39

Difference -0.46 -0.31 -0.31 -0.30 0.20 -1.48 -1.49 0.00 0.37 -0.61 -3.16 2.69 7.11

NMSIC US Equity Composite 6,910,520,290 36.08 -0.21 1.84 1.84 19.83 23.52 12.53 20.06 8.52 34.12 16.02 -4.34 19.00 38.89

R 3000 Index 0.53 1.97 1.97 19.40 22.61 14.61 21.93 7.86 33.55 16.42 1.03 16.93 28.34

Difference -0.74 -0.13 -0.13 0.43 0.91 -2.08 -1.87 0.66 0.57 -0.40 -5.37 2.07 10.55

NMSIC Non-US Equity Composite 2,660,237,205 13.89 1.17 -0.62 -0.62 11.84 7.57 1.87 15.49 7.49 10.88 16.27 -14.99 12.13 56.12

Non-US Equity Custom Index 0.85 0.25 0.25 14.07 9.67 3.16 15.53 8.11 12.03 17.79 -14.54 12.12 49.14

Difference 0.32 -0.87 -0.87 -2.23 -2.10 -1.29 -0.04 -0.62 -1.15 -1.52 -0.45 0.01 6.98

NMSIC Fixed Income Composite 4,390,878,898 22.93 0.20 2.38 2.38 4.81 2.76 6.76 9.42 4.24 1.74 12.78 6.65 17.12 4.74

Fixed Income Custom Index -0.03 1.79 1.79 2.20 0.32 2.07 4.86 1.42 -1.41 0.69 6.25 10.89 6.04

Difference 0.23 0.59 0.59 2.61 2.44 4.69 4.56 2.82 3.15 12.09 0.40 6.23 -1.30

NMSIC US Core Bonds Pool 2,952,253,615 15.42 0.01 2.51 2.51 4.60 1.40 5.86 5.79 5.07 -0.34 11.29 4.92 11.07 -0.33

Barclays US Agg Bond Index -0.17 1.84 1.84 2.28 -0.10 3.75 4.80 4.46 -2.02 4.21 7.84 6.54 5.93

Difference 0.18 0.67 0.67 2.32 1.50 2.11 0.99 0.61 1.68 7.08 -2.92 4.53 -6.26

NMSIC Credit & Structured Finance Pool 949,501,935 4.96 0.90 2.85 2.85 6.11 9.87 11.60 29.89 N/A 11.61 19.67 16.03 46.02 37.65

C&SF Primary Benchmark 0.30 2.15 2.15 2.23 2.82 -4.66 5.01 N/A 1.45 -12.07 -2.18 31.02 4.64

Difference 0.60 0.70 0.70 3.88 7.05 16.26 24.88 N/A 10.16 31.74 18.21 15.00 33.01

C&SF Secondary Benchmark 0.22 2.41 2.41 2.49 3.09 -4.58 5.07 N/A 1.45 -12.07 -2.18 31.02 4.64

Difference 0.68 0.44 0.44 3.62 6.78 16.18 24.82 N/A 10.16 31.74 18.21 15.00 33.01


Asset Allocation & Performance - Composites


Performance shown is gross of fees, except for Credit & Structured Finance, Absolute Return, Real Estate, Real Return, and Private Equity investments, which are shown net of fees. Performance is annualized for periods greater than one year. RVK endorses GIPS and calculates performance for composites and investment managers using different methodologies. Fiscal year ends June 30.

Page 2


Asset Allocation & Performance - Composites

As of March 31, 2014Allocation

MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011 2010 2009

NMSIC Unconstrained Fixed Income Pool 489,123,347 2.55 -0.03 0.72 0.72 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

3 Month LIBOR + 2.5% 0.23 0.68 0.68 2.07 2.78 2.86 2.93 4.65 2.79 3.02 2.78 2.84 3.52

Difference -0.26 0.04 0.04 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

NMSIC Cash Equivalent Composite 61,638,976 0.32 0.00 0.19 0.19 0.20 0.54 1.17 0.88 2.43 1.06 0.00 2.52 0.20 0.56

BofA ML 3 Mo US T-Bill Index 0.00 0.01 0.01 0.05 0.07 0.08 0.12 1.65 0.07 0.11 0.10 0.13 0.21

Difference 0.00 0.18 0.18 0.15 0.47 1.09 0.76 0.78 0.99 -0.11 2.42 0.07 0.35

NMSIC Absolute Return Composite 1,267,357,820 6.62 -0.18 1.56 1.56 6.97 8.49 4.19 5.88 N/A 10.68 6.50 -3.92 4.65 11.43

HFRI FOF Comp Index -0.77 0.45 0.45 5.87 5.92 2.34 4.89 3.10 8.96 4.79 -5.72 5.70 11.47

Difference 0.59 1.11 1.11 1.10 2.57 1.85 0.99 N/A 1.72 1.71 1.80 -1.05 -0.04

NMSIC Private Equity Composite (Ex. State) 1,605,316,126 8.38 4.79 4.90 4.90 12.37 15.93 10.85 8.08 11.68 12.94 14.86 10.03 11.02 -11.25

80/20 Cambridge PE Index (Lagged 1 Qtr) 0.00 0.00 0.00 8.77 13.22 12.25 13.48 13.06 16.62 14.12 15.20 16.36 -9.94

Difference 4.79 4.90 4.90 3.60 2.71 -1.40 -5.40 -1.38 -3.68 0.74 -5.17 -5.34 -1.31

Venture Econ All Prvt Eq Index (Lagged 1 Qtr) 7.33 7.33 7.33 15.24 20.84 14.50 15.51 13.11 16.57 14.34 12.33 15.77 -6.33

Difference -2.54 -2.43 -2.43 -2.87 -4.91 -3.65 -7.43 -1.43 -3.63 0.52 -2.30 -4.75 -4.92

Townsend Reported Real Estate 1,082,589,554 5.65 3.80 3.80 3.80 9.80 12.34 10.26 1.93 N/A 10.50 9.63 10.34 -6.44 -32.07

NCREIF ODCE Index (Net) (Lagged 1 Qtr) 2.94 2.94 2.94 10.21 12.90 12.53 2.71 6.16 11.97 10.47 17.18 6.01 -35.70

Difference 0.86 0.86 0.86 -0.41 -0.56 -2.27 -0.78 N/A -1.47 -0.84 -6.84 -12.45 3.63

NCREIF/Townsend Wtd Benchmark (Lagged 1 Qtr) 3.00 3.00 3.00 9.91 12.35 12.28 2.65 N/A 12.07 10.46 17.01 3.64 -37.07

Difference 0.80 0.80 0.80 -0.11 -0.01 -2.02 -0.72 N/A -1.57 -0.83 -6.67 -10.08 5.00

NMSIC Real Return 753,944,805 3.94 1.13 2.14 2.14 5.26 7.39 N/A N/A N/A 8.40 N/A N/A N/A N/A

Real Return Custom Index 0.44 3.20 3.20 4.74 0.05 1.82 4.68 4.78 -2.72 4.90 2.77 7.53 8.92

Difference 0.69 -1.06 -1.06 0.52 7.34 N/A N/A N/A 11.12 N/A N/A N/A N/A

Performance shown is gross of fees, except for Credit & Structured Finance, Absolute Return, Real Estate, Real Return, and Private Equity investments, which are shown net of fees. Performance is annualized for periods greater than one year. RVK endorses GIPS and calculates performance for composites and investment managers using different methodologies. Fiscal year ends June 30.

Page 3

Figure 2: Total Value Added:0.68%Figure 1: Total Fund Performance

Figure 4: Total Mgr Value Added:0.52%

Manager Value Added

0.00% 0.40% 0.80%-0.40 %-0.80 %

0.00%

0.11%

-0.05 %

0.22%

0.15%

0.22%

-0.38 %

0.24%

Asset Allocation Value Added

0.00% 0.50% 1.00%-0.50 %-1.00 %

-0.11 %

0.17%

-0.03 %

-0.05 %

-0.02 %

-0.53 %

0.33%

0.04%

Figure 3: Total Asset Allocation:-0.20 %


Land Grant Total Fund Composite vs. Land Grant Policy Index

Total Fund Attribution

1 Year Ending March 31, 2014

Performance shown is gross of fees. Calculation is based on monthly periodicity. Total Value Added: The percentage over- or underperformance of the total fund as compared to the benchmark for the specified time period. Average Active Weight: The average percentage over- or underweight to each investment relative to the policy weights. Asset Allocation Value Added: How the variance of the fund's actual allocation from the policy weights added or subtracted from total fund performance. Manager Value Added: The portion of total value added attributable to the relative performance of the fund's investments, relative to the individual benchmarks that represent them in the Land Grant Policy Index. Other: The contribution of other residual factors, including estimation error and transaction timing. See Glossary for additional information regarding the Total Fund Attribution calculation. Page 4

Figure 2: Total Value Added:-0.80 %Figure 1: Total Fund Performance

Figure 4: Total Mgr Value Added:-1.06 %

Manager Value Added

0.00% 0.80%-0.80 %-1.60 %

0.00%

0.04%

-0.10 %

-0.16 %

0.08%

0.30%

-0.26 %

-0.97 %


0.00% 0.30% 0.60%-0.30 %-0.60 %

-0.08 %

0.14%

-0.07 %

-0.07 %

-0.04 %

-0.22 %

0.27%

0.18%

Figure 3: Total Asset Allocation:0.12%


Land Grant Total Fund Composite vs. Land Grant Policy Index


3 Years Ending March 31, 2014

Performance shown is gross of fees. Calculation is based on monthly periodicity. Total Value Added: The percentage over- or underperformance of the total fund as compared to the benchmark for the specified time period. Average Active Weight: The average percentage over- or underweight to each investment relative to the policy weights. Asset Allocation Value Added: How the variance of the fund's actual allocation from the policy weights added or subtracted from total fund performance. Manager Value Added: The portion of total value added attributable to the relative performance of the fund's investments, relative to the individual benchmarks that represent them in the Land Grant Policy Index. Other: The contribution of other residual factors, including estimation error and transaction timing. See Glossary for additional information regarding the Total Fund Attribution calculation. Page 5

Figure 2: Total Value Added:0.45%Figure 1: Total Fund Performance

Figure 4: Total Mgr Value Added:0.49%

Manager Value Added

0.00% 0.30% 0.60%-0.30 %-0.60 %

0.00%

0.00%

0.07%

-0.03 %

0.06%

0.15%

0.24%

-0.22 %

0.22%


0.00% 0.50% 1.00%-0.50 %-1.00 %

-0.08 %

-0.20 %

0.28%

-0.03 %

-0.01 %

-0.02 %

-0.43 %

0.37%

-0.18 %

Figure 3: Total Asset Allocation:-0.30 %


Severance Tax Total Fund Composite vs. Severance Tax Policy Index


1 Year Ending March 31, 2014

Performance shown is gross of fees. Calculation is based on monthly periodicity. Total Value Added: The percentage over- or underperformance of the total fund as compared to the benchmark for the specified time period. Average Active Weight: The average percentage over- or underweight to each investment relative to the policy weights. Asset Allocation Value Added: How the variance of the fund's actual allocation from the policy weights added or subtracted from total fund performance. Manager Value Added: The portion of total value added attributable to the relative performance of the fund's investments, relative to the individual benchmarks that represent them in the Severance Tax Policy Index. Other: The contribution of other residual factors, including estimation error and transaction timing. See Glossary for additional information regarding the Total Fund Attribution calculation. Page 6

Figure 2: Total Value Added:-1.31 %Figure 1: Total Fund Performance

Figure 4: Total Mgr Value Added:-1.54 %

Manager Value Added

0.00% 0.80%-0.80 %-1.60 %

0.00%

0.00%

0.03%

-0.12 %

-0.45 %

0.08%

0.23%

-0.20 %

-1.10 %


0.00% 0.30% 0.60%-0.30 %-0.60 %

-0.05 %

-0.17 %

0.17%

-0.04 %

0.17%

0.02%

-0.13 %

0.37%

-0.03 %

Figure 3: Total Asset Allocation:0.33%


Severance Tax Total Fund Composite vs. Severance Tax Policy Index


3 Years Ending March 31, 2014

Performance shown is gross of fees. Calculation is based on monthly periodicity. Total Value Added: The percentage over- or underperformance of the total fund as compared to the benchmark for the specified time period. Average Active Weight: The average percentage over- or underweight to each investment relative to the policy weights. Asset Allocation Value Added: How the variance of the fund's actual allocation from the policy weights added or subtracted from total fund performance. Manager Value Added: The portion of total value added attributable to the relative performance of the fund's investments, relative to the individual benchmarks that represent them in the Severance Tax Policy Index. Other: The contribution of other residual factors, including estimation error and transaction timing. See Glossary for additional information regarding the Total Fund Attribution calculation. Page 7

Allocation

MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011

SinceIncep.

InceptionDate

US Equity

NMSIC US Equity Composite 6,910,520,290 36.08 -0.21 1.84 1.84 19.83 23.52 12.53 20.06 8.52 34.12 16.02 -4.34 5.37 05/01/1999

R 3000 Index 0.53 1.97 1.97 19.40 22.61 14.61 21.93 7.86 33.55 16.42 1.03 4.94

NMSIC US Large Cap Equity Composite 5,913,792,087 30.88 -0.24 1.59 1.59 19.01 22.10 12.07 19.01 8.44 32.57 16.32 -4.63 4.63 05/01/1999

R 1000 Index 0.64 2.05 2.05 19.25 22.41 14.75 21.73 7.80 33.11 16.43 1.50 4.68

NMSIC US Large Cap Active Pool 2,458,360,151 12.84 -1.31 1.04 1.04 18.96 22.22 10.80 18.03 8.18 32.34 15.45 -6.46 4.16 05/01/1999

Wellington Management Company 758,801,754 3.96 1.75 2.93 2.93 16.17 19.50 N/A N/A N/A 28.72 N/A N/A 23.72 06/01/2012

R 1000 Value Index 2.39 3.02 3.02 17.80 21.57 14.80 21.75 7.58 32.53 17.50 0.39 26.98

Brown Brothers Harriman 604,265,770 3.16 1.76 2.04 2.04 14.72 17.76 N/A N/A N/A 28.51 N/A N/A 22.42 07/01/2012

R 1000 Index 0.64 2.05 2.05 19.25 22.41 14.75 21.73 7.80 33.11 16.43 1.50 23.45

J.P. Morgan Asset Management 751,173,696 3.92 -5.00 -1.17 -1.17 21.52 24.32 N/A N/A N/A 34.13 N/A N/A 19.25 06/01/2012

T. Rowe Price LC Growth 344,118,932 1.80 -4.63 0.22 0.22 28.25 34.25 N/A N/A N/A 45.43 N/A N/A 28.71 06/01/2012

R 1000 Growth Index -1.01 1.12 1.12 20.73 23.22 14.62 21.68 7.86 33.48 15.26 2.64 22.55

NMSIC US Large Cap Index Pool 2,910,940,565 15.20 0.63 2.04 2.04 19.21 22.41 14.60 20.55 8.57 33.10 16.09 1.18 5.26 05/01/1999

NT Russell 1000 Index Fund 2,910,433,936 15.20 0.63 2.03 2.03 19.21 22.41 N/A N/A N/A 33.10 16.31 N/A 17.49 08/01/2011

R 1000 Index 0.64 2.05 2.05 19.25 22.41 14.75 21.73 7.80 33.11 16.43 1.50 17.65

NMSIC US Large Cap Enhanced Index Pool 544,491,371 2.84 -0.01 1.66 1.66 18.34 20.16 N/A N/A N/A 32.03 N/A N/A 24.19 06/01/2012

PanAgora Asset Management 544,491,371 2.84 -0.01 1.66 1.66 18.34 20.16 N/A N/A N/A 32.03 N/A N/A 24.49 06/01/2012

R 1000 Index 0.64 2.05 2.05 19.25 22.41 14.75 21.73 7.80 33.11 16.43 1.50 24.81

NMSIC US Small/Mid Cap Equity Composite 996,728,202 5.20 0.00 3.40 3.40 24.69 31.52 N/A N/A N/A 42.39 14.00 N/A 14.16 05/01/2011

R 2500 Index -0.36 2.30 2.30 21.25 24.01 13.95 25.33 9.43 36.80 17.88 -2.51 13.26

NMSIC US Small/Mid Cap Active Pool 698,555,843 3.65 -0.14 3.55 3.55 24.90 33.28 15.30 24.15 9.58 43.97 13.70 -2.65 9.24 11/01/1998

Seizert Capital Partners 239,140,929 1.25 0.49 2.38 2.38 24.79 34.72 N/A N/A N/A 49.44 22.61 N/A 32.26 01/01/2012

R Mid Cap Index -0.27 3.53 3.53 20.85 23.51 14.39 25.55 10.05 34.76 17.28 -1.55 24.46

Donald Smith & Company 219,516,311 1.15 1.35 8.17 8.17 29.65 31.51 N/A N/A N/A 32.42 19.90 N/A 27.18 01/01/2012

R 2000 Value Index 1.24 1.78 1.78 19.69 22.65 12.74 23.33 8.07 34.52 18.05 -5.50 23.79

Cortina Asset Management 239,898,603 1.25 -2.07 0.75 0.75 20.57 32.63 N/A N/A N/A 49.08 7.72 N/A 23.85 01/01/2012

R 2000 Growth Index -2.46 0.48 0.48 22.61 27.19 13.61 25.24 8.87 43.30 14.59 -2.91 24.93

NMSIC US Small/Mid Cap Index Pool 91,243,715 0.48 -0.72 2.73 2.73 22.56 25.41 N/A N/A N/A 33.79 N/A N/A 28.97 01/01/2013

NT Extended Equity Market Index Fund 91,243,715 0.48 -0.72 2.73 2.73 22.56 25.41 N/A N/A N/A 33.79 N/A N/A 28.97 01/01/2013

R 2500 Index -0.36 2.30 2.30 21.25 24.01 13.95 25.33 9.43 36.80 17.88 -2.51 30.85


Asset Allocation & Performance - Composites & Managers


Performance shown is gross of fees, except for Credit & Structured Finance, Absolute Return, Real Estate, Real Return, and Private Equity investments, which are shown net of fees. Performance is annualized for periods greater than one year. RVK endorses GIPS and calculates performance for composites and investment managers using different methodologies. Since Inception date shown represents the first full month following initial funding. Fiscal year ends June 30.

Page 8




MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011

SinceIncep.

InceptionDate

NMSIC US Small/Mid Cap Enhanced Index Pool 206,928,644 1.08 0.80 3.18 3.18 25.21 28.61 N/A N/A N/A 40.57 N/A N/A 35.45 12/01/2012

BlackRock Alpha Tilts 206,899,283 1.08 0.80 3.19 3.19 25.21 28.62 N/A N/A N/A 40.59 N/A N/A 25.46 02/01/2012

R 2000 Index -0.68 1.12 1.12 21.16 24.90 13.18 24.31 8.53 38.82 16.34 -4.18 21.52

Non-US Equity

NMSIC Non-US Equity Composite 2,660,237,205 13.89 1.17 -0.62 -0.62 11.84 7.57 1.87 15.49 7.49 10.88 16.27 -14.99 6.05 05/01/1999

Non-US Equity Custom Index 0.85 0.25 0.25 14.07 9.67 3.16 15.53 8.11 12.03 17.79 -14.54 6.38

NMSIC Non-US Developed Markets Composite 1,370,424,639 7.16 -0.10 0.35 0.35 17.65 16.59 7.29 15.76 6.18 22.22 17.61 -11.38 4.68 05/01/1999

MSCI EAFE Index (Net) -0.64 0.66 0.66 18.72 17.56 7.21 16.02 6.53 22.78 17.32 -12.14 4.23

NMSIC Non-US Developed Markets Active Pool 1,248,908,395 6.52 -0.05 0.37 0.37 N/A N/A N/A N/A N/A N/A N/A N/A 12.55 09/01/2013

LSV Int'l Large Cap Value 278,030,456 1.45 0.58 0.83 0.83 N/A N/A N/A N/A N/A N/A N/A N/A 14.26 09/01/2013

MSCI ACW Ex US Value Index (Net) 0.44 0.71 0.71 17.61 13.80 4.01 15.80 7.27 15.04 16.97 -13.20 13.33

T. Rowe Price Int'l Core 344,192,866 1.80 -0.61 -0.09 -0.09 N/A N/A N/A N/A N/A N/A N/A N/A 14.72 09/01/2013

Schroder Int'l Alpha 4,934 0.00 0.03 -8.48 -8.48 N/A N/A N/A N/A N/A N/A N/A N/A -1.78 09/01/2013

Russell Transition Mgmt Non-US Developed 95,583 0.00 1.85 4.98 4.98 N/A N/A N/A N/A N/A N/A N/A N/A -21.67 09/01/2013


MFS Int'l Large Cap Growth 341,042,886 1.78 -0.14 -0.78 -0.78 N/A N/A N/A N/A N/A N/A N/A N/A 3.24 10/01/2013

MSCI ACW Ex US Growth Index (Net) 0.07 0.30 0.30 14.25 10.84 4.27 15.22 6.93 15.49 16.67 -14.21 4.98

Templeton Int'l Small Cap Equity 285,541,670 1.49 0.12 1.86 1.86 N/A N/A N/A N/A N/A N/A N/A N/A 7.13 10/01/2013

MSCI ACW Ex US Sm Cap Index (Net) 0.13 3.47 3.47 21.66 16.28 5.52 21.18 9.31 19.73 18.52 -18.50 8.26

NMSIC Non-US Developed Markets Index Pool 121,516,245 0.63 -0.58 0.15 0.15 17.74 16.69 7.32 15.78 6.19 22.56 17.61 -11.38 4.69 05/01/1999

Alliance Bernstein MSCI EAFE Int'l Index 120,940,665 0.63 -0.58 0.15 0.15 17.78 16.72 7.29 16.11 6.55 22.59 17.53 -11.44 6.21 06/01/1998


NMSIC Non-US Emerging Markets Composite 1,289,812,566 6.73 2.56 -1.63 -1.63 5.02 -3.69 -6.08 13.87 10.10 -3.55 14.10 -21.95 9.53 05/01/1999

MSCI Emg Mkts Index (Net) 3.07 -0.43 -0.43 7.24 -1.43 -2.86 14.48 10.11 -2.60 18.23 -18.42 9.21

NMSIC Non-US Emerging Markets Active Pool 772,633,140 4.03 2.38 -2.25 -2.25 N/A N/A N/A N/A N/A N/A N/A N/A 5.44 09/01/2013

BlackRock Emg Mkts Opp Fund 263,892,277 1.38 2.59 -1.97 -1.97 N/A N/A N/A N/A N/A N/A N/A N/A -0.15 10/01/2013

DuPont Capital Management 507,352,226 2.65 2.27 -2.40 -2.40 N/A N/A N/A N/A N/A N/A N/A N/A 4.89 09/01/2013

SSGM Transition Mgmt Non-US Emerging 1,388,637 0.01 0.26 0.67 0.67 N/A N/A N/A N/A N/A N/A N/A N/A 21.18 09/01/2013



Page 9




MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011

SinceIncep.

InceptionDate

NMSIC Non-US Emerging Markets Index Pool 517,179,426 2.70 2.83 -0.69 -0.69 7.05 -1.83 -5.48 14.31 10.31 -2.61 14.10 -21.95 9.67 05/01/1999

Alliance Bernstein Emerging Markets Index 517,179,426 2.70 2.83 -0.68 -0.68 7.05 -1.82 N/A N/A N/A -2.61 N/A N/A 1.97 11/01/2012


Fixed Income

NMSIC Fixed Income Composite 4,390,878,898 22.93 0.20 2.38 2.38 4.81 2.76 6.76 9.42 4.24 1.74 12.78 6.65 5.48 05/01/1999

Fixed Income Custom Index -0.03 1.79 1.79 2.20 0.32 2.07 4.86 1.42 -1.41 0.69 6.25 3.34

NMSIC US Core Bonds Pool 2,952,253,615 15.42 0.01 2.51 2.51 4.60 1.40 5.86 5.79 5.07 -0.34 11.29 4.92 5.89 05/01/1999

Barclays US Agg Bond Index -0.17 1.84 1.84 2.28 -0.10 3.75 4.80 4.46 -2.02 4.21 7.84 5.41

PIMCO Barclays US Universal 1,249,535,877 6.52 -0.23 2.01 2.01 3.43 0.34 4.86 N/A N/A -0.69 11.44 N/A 4.86 04/01/2011

Prudential Barclays US Universal 850,104,087 4.44 0.06 2.68 2.68 5.70 2.64 6.96 N/A N/A 0.77 11.23 N/A 6.96 04/01/2011

Loomis Sayles Barclays US Universal 851,740,467 4.45 0.30 3.08 3.08 5.43 1.89 6.35 N/A N/A -0.84 10.77 N/A 6.35 04/01/2011

Barclays US Unv Bond Index -0.09 1.95 1.95 2.94 0.51 4.23 5.74 4.78 -1.35 5.53 7.40 4.23

NMSIC Credit & Structured Finance Pool 949,501,935 4.96 0.90 2.85 2.85 6.11 9.87 11.60 29.89 N/A 11.61 19.67 16.03 2.11 04/01/2006

C&SF Primary Benchmark 0.30 2.15 2.15 2.23 2.82 -4.66 5.01 N/A 1.45 -12.07 -2.18 N/A

C&SF Secondary Benchmark 0.22 2.41 2.41 2.49 3.09 -4.58 5.07 N/A 1.45 -12.07 -2.18 N/A

NMSIC Unconstrained Fixed Income Pool 489,123,347 2.55 -0.03 0.72 0.72 N/A N/A N/A N/A N/A N/A N/A N/A 0.68 12/01/2013

PIMCO Unconstrained 251,965,491 1.32 -0.22 0.89 0.89 N/A N/A N/A N/A N/A N/A N/A N/A 0.59 12/01/2013

Loomis Sayles Unconstrained 202,157,004 1.06 0.20 0.64 0.64 N/A N/A N/A N/A N/A N/A N/A N/A 0.93 12/01/2013

Cash Unconstrained 35,000,853 0.18 0.00 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.00 02/01/2014

3 Month LIBOR + 2.5% 0.23 0.68 0.68 2.07 2.78 2.86 2.93 4.65 2.79 3.02 2.78 0.45

NMSIC Cash Equivalent Composite 61,638,976 0.32 0.00 0.19 0.19 0.20 0.54 1.17 0.88 2.43 1.06 0.00 2.52 4.09 07/01/1988

BofA ML 3 Mo US T-Bill Index 0.00 0.01 0.01 0.05 0.07 0.08 0.12 1.65 0.07 0.11 0.10 3.70

Absolute Return

NMSIC Absolute Return Composite 1,267,357,820 6.62 -0.18 1.56 1.56 6.97 8.49 4.19 5.88 N/A 10.68 6.50 -3.92 2.76 09/01/2005

Mariner Matador, LLC 446,583,682 2.33 -0.06 1.82 1.82 8.48 11.14 5.16 5.87 N/A 14.75 6.01 -5.34 3.99 10/01/2005

AAM High Desert Fund 414,675,538 2.17 -0.55 1.29 1.29 8.35 9.33 5.86 N/A N/A 12.83 10.31 -3.98 5.87 12/01/2010

Crestline Enchantment Fund Class A 351,429,171 1.83 0.10 1.79 1.79 5.79 7.05 2.92 5.43 N/A 7.16 3.84 -1.52 3.30 10/01/2005

Crestline Enchantment Fund Class B 32,402,838 0.17 0.00 0.00 0.00 -3.69 -2.31 -0.48 3.14 N/A -2.04 3.54 0.71 0.13 06/01/2006

Crestline Offshore Recovery 8,392,345 0.04 0.00 -0.16 -0.16 -3.94 -7.56 -1.63 14.96 N/A -5.50 5.35 -3.07 14.27 02/01/2009

Austin Capital Safe Harbor QP Fund 7,582,382 0.04 0.00 -0.37 -0.37 -20.63 -21.96 -12.64 -7.41 N/A -21.36 -2.27 -16.86 -4.12 10/01/2005

CT Preferred Investors Management LLC 3,741,985 0.02 0.00 0.00 0.00 0.10 0.24 0.59 3.20 N/A -2.12 4.61 0.21 -0.91 11/01/2005

ARS Pool (Cash Account) 2,549,880 0.01 0.00 0.00 0.00 0.01 0.01 0.37 0.21 N/A 1.11 0.00 0.00 1.74 09/01/2005


Page 10




MarketValue ($)

%

Performance (%)

MTD QTD CYTD FYTD1

Year3

Years5

Years10

Years2013 2012 2011

SinceIncep.

InceptionDate

HFRI FOF Comp Index -0.77 0.45 0.45 5.87 5.92 2.34 4.89 3.10 8.96 4.79 -5.72 2.78

Private Equity

NMSIC Private Equity Composite (Ex. State) 1,605,316,126 8.38 4.79 4.90 4.90 12.37 15.93 10.85 8.08 11.68 12.94 14.86 10.03 4.07 06/01/2001

Private Equity Pooled Funds 1,602,565,717 8.37 4.80 4.91 4.91 12.39 15.96 N/A N/A N/A 12.95 16.22 N/A 10.90 07/01/2011

80/20 Cambridge PE Index (Lagged 1 Qtr) 0.00 0.00 0.00 8.77 13.22 12.25 13.48 13.06 16.62 14.12 15.20 11.47

Venture Econ All Prvt Eq Index (Lagged 1 Qtr) 7.33 7.33 7.33 15.24 20.84 14.50 15.51 13.11 16.57 14.34 12.33 13.71

Real Estate

Townsend Reported Real Estate 1,082,589,554 5.65 3.80 3.80 3.80 9.80 12.34 10.26 1.93 N/A 10.50 9.63 10.34 2.25 10/01/2004

NCREIF ODCE Index (Net) (Lagged 1 Qtr) 2.94 2.94 2.94 10.21 12.90 12.53 2.71 6.16 11.97 10.47 17.18 5.93

NCREIF/Townsend Wtd Benchmark (Lagged 1 Qtr) 3.00 3.00 3.00 9.91 12.35 12.28 2.65 N/A 12.07 10.46 17.01 6.79

Real Return

NMSIC Real Return 753,944,805 3.94 1.13 2.14 2.14 5.26 7.39 N/A N/A N/A 8.40 N/A N/A 7.82 06/01/2012

Real Return Custom Index 0.44 3.20 3.20 4.74 0.05 1.82 4.68 4.78 -2.72 4.90 2.77 2.80

ETI

NMSIC Economically Targeted Investments 37,258,768 0.19 -1.20 -1.35 -1.35 -2.44 -2.63 -1.56 -2.14 -1.15 -1.15 -0.32 -2.12 -1.82 07/01/1998

BofA ML 3 Mo US T-Bill Index 0.00 0.01 0.01 0.05 0.07 0.08 0.12 1.65 0.07 0.11 0.10 2.38

Severance Tax State PE Program 221,292,663 1.16 2.41 2.34 2.34 11.83 10.44 7.76 2.66 -0.44 6.85 13.11 11.39 -5.07 08/01/2001

Cambridge VC Index (Lagged 1 Qtr) 0.00 0.00 0.00 11.04 13.84 11.32 10.09 8.48 15.15 7.54 20.66 0.12

Venture Econ All Prvt Eq Index (Lagged 1 Qtr) 7.33 7.33 7.33 15.24 20.84 14.50 15.51 13.11 16.57 14.34 12.33 9.35

NMSIC Total Fund Composite 19,151,457,842 100.00 0.91 2.02 2.02 12.01 13.04 8.57 13.02 6.61 16.26 14.26 -0.93 5.00 01/01/2000


Page 11

NMSIC Total Fund - Schedule of Investable Assets

Allocation

MarketValue ($)

%

Perf. (%)

QTD1

Year

Loomis Sayles Barclays US Universal 851,740,467 4.45 3.08 1.89

NMSIC Credit & Structured Finance Pool 949,501,935 4.96 2.85 9.87

NMSIC Unconstrained Fixed Income Pool 489,123,347 2.55 0.72 N/A

NMSIC Cash Equivalent Composite 61,638,976 0.32 0.19 0.54

NMSIC Economically Targeted Inv. 37,258,768 0.19 -1.35 -2.63

SIC Managed Core Bonds Fund 873,184 0.00 0.00 0.01

NMSIC Absolute Return Composite 1,267,357,820 6.62 1.56 8.49

Mariner Matador, LLC 446,583,682 2.33 1.82 11.14

AAM High Desert Fund 414,675,538 2.17 1.29 9.33

Crestline Enchantment Fund Class A 351,429,171 1.83 1.79 7.05

Crestline Enchantment Fund Class B 32,402,838 0.17 0.00 -2.31

Crestline Offshore Recovery 8,392,345 0.04 -0.16 -7.56

Austin Capital Safe Harbor QP Fund 7,582,382 0.04 -0.37 -21.96

CT Preferred Investors Management LLC 3,741,985 0.02 0.00 0.24

ARS Pool (Cash Account) 2,549,880 0.01 0.00 0.01

NMSIC Private Equity Composite 1,826,608,789 9.54 4.59 15.29

Townsend Reported Real Estate 1,082,589,554 5.65 3.80 12.34

NMSIC Real Return 753,944,805 3.94 2.14 7.39

Waterfall Eden Fund, LP 167,548,713 0.87 3.44 N/A

ING Real Return 154,705,573 0.81 1.13 N/A

Credit Suisse Bank Loan 129,119,996 0.67 1.19 N/A

J.P. Morgan Infrastructure Partners 67,691,343 0.35 7.36 N/A

Real Return Pool (Cash Account) 58,505,940 0.31 0.00 0.01

Natural Gas Partners X, L.P. 44,248,173 0.23 -1.12 11.85

EIG Energy Fund XV 38,736,118 0.20 0.21 10.73

Global Infrastructure Partners II 30,286,303 0.16 7.66 30.59

Brookfield Global Timber V 19,779,936 0.10 -0.38 N/A

Brookfield Infrastructure II 12,729,939 0.07 -1.64 N/A

Brookfield Capital Partners III 11,816,072 0.06 14.56 19.99

EIG Energy Fund XVI 9,038,104 0.05 -14.50 N/A

EnCap Investments, L.P. 7,667,123 0.04 8.01 -14.23

Alterna II 2,071,456 0.01 -24.08 N/A

Allocation

MarketValue ($)

%

Perf. (%)

QTD1

Year

NMSIC Total Fund Composite 19,151,457,842 100.00 2.02 13.04

NMSIC US Equity Composite 6,910,520,290 36.08 1.84 23.52

NT Russell 1000 Index Fund 2,910,433,936 15.20 2.03 22.41

Wellington Management Company 758,801,754 3.96 2.93 19.50

J.P. Morgan Asset Management 751,173,696 3.92 -1.17 24.32

Brown Brothers Harriman 604,265,770 3.16 2.04 17.76

PanAgora Asset Management 544,491,371 2.84 1.66 20.16

T. Rowe Price LC Growth 344,118,932 1.80 0.22 34.25

Cortina Asset Management 239,898,603 1.25 0.75 32.63

Seizert Capital Partners 239,140,929 1.25 2.38 34.72

Donald Smith & Company 219,516,311 1.15 8.17 31.51

BlackRock Alpha Tilts 206,899,283 1.08 3.19 28.62

NT Extended Equity Market Index Fund 91,243,715 0.48 2.73 25.41

SIC Managed Large Cap Index 495,838 0.00 5.96 7.23

BlackRock Transition 29,361 0.00 -13.69 -8.07

Northern Trust Transition 10,791 0.00 3.71 6.85

NMSIC Non-US Equity Composite 2,660,237,205 13.89 -0.62 7.57

Alliance Bernstein Emerging Markets Index 517,179,426 2.70 -0.68 -1.82

DuPont Capital Management 507,352,226 2.65 -2.40 N/A

T. Rowe Price Int'l Core 344,192,866 1.80 -0.09 N/A

MFS Int'l Large Cap Growth 341,042,886 1.78 -0.78 N/A

Templeton Int'l Small Cap Equity 285,541,670 1.49 1.86 N/A

LSV Int'l Large Cap Value 278,030,456 1.45 0.83 N/A

BlackRock Emg Mkts Opp Fund 263,892,277 1.38 -1.97 N/A

Alliance Bernstein MSCI EAFE Int'l Index 120,940,665 0.63 0.15 16.72

SSGM Transition Mgmt Non-US Emerging 1,388,637 0.01 0.67 N/A

Reclaims (Jarislowksy Fraser) 575,580 0.00 0.03 20.14

Russell Transition Mgmt Non-US Developed 95,583 0.00 4.98 N/A

Schroder Int'l Alpha 4,934 0.00 -8.48 N/A

NMSIC Fixed Income Composite 4,390,878,898 22.93 2.38 2.76

PIMCO Barclays US Universal 1,249,535,877 6.52 2.01 0.34

Prudential Barclays US Universal 850,104,087 4.44 2.68 2.64

Periods EndingBeginning

Market Value ($)Net

Cash Flow ($)Gain/Loss ($)

EndingMarket Value ($)

%Return

FYTD 17,094,085,920 4,854,507 2,052,517,415 19,151,457,842 12.01


Asset Allocation, Performance & Schedule of Investable Assets


Allocations shown may not sum up to 100% exactly due to rounding. Performance shown is gross of fees, except for Credit & Structured Finance, Absolute Return, Real Estate, Real Return, and Private Equity, which are net of fees. Market values and performance are preliminary and subject to change. RVK endorses GIPS and calculates performance for composites and investment managers using different methodologies. Fiscal year ends June 30.

Page 12

Capital Markets ReviewAs of March 31, 2014

•

•

•

•

•

•

• 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr

•Treasury Yield Curve 03/31/14 02/28/14 03/31/13 03/31/11

Market Indicators 03/31/14 02/28/14 03/31/13 20 Yr 40 Yr 3 Month 0.03% 0.05% 0.07% 0.09%

Federal Funds Rate 0.06% ─ 0.06% 0.13% 3.06% 5.68% 6 Month 0.05% 0.07% 0.10% 0.17%

Breakeven Inflation - 1 Year 1.79% ▼ 2.02% 2.32% 1.17% 1.17% 1 Year 0.11% 0.10% 0.12% 0.27%



Breakeven Inflation - 30 Year 2.28% ─ 2.28% 2.50% 2.33% 2.33% 7 Year 2.30% 2.12% 1.21% 2.92%

Barclays US Agg Bond Index - Yield 2.39% ▲ 2.28% 1.86% 4.98% 5.66% 10 Year 2.72% 2.65% 1.85% 3.47%

Barclays US Agg Bond Index - OAS 0.44% ─ 0.44% 0.56% 0.70% 0.69% 20 Year 3.31% 3.31% 2.71% 4.29%

Barclays US Agg Credit Index - OAS 1.03% ▼ 1.06% 1.30% 1.56% 1.54% 30 Year 3.56% 3.58% 3.10% 4.51%

Barclays US Corp: HY Index - OAS 3.58% ▼ 3.63% 4.57% 5.90% 5.90%

Capacity Utilization 79.20% ▲ 78.80% 78.00% 78.90% 79.80% Market Performance MTD QTD CYTD 1 Yr 3 Yr 5 Yr 10 Yr Unemployment Rate 6.70% ─ 6.70% 7.50% 6.00% 6.50% S&P 500 (Cap Wtd) 0.84 1.81 1.81 21.86 14.66 21.16 7.42 PMI - Manufacturing 53.70% ▲ 53.20% 51.50% 52.10% 51.70% R 2000 -0.68 1.12 1.12 24.90 13.18 24.31 8.53 Baltic Dry Index - Shipping 1,362 ▲ 1,258 910 1,619 1,443 MSCI EAFE (Net) -0.64 0.66 0.66 17.56 7.21 16.02 6.53Consumer Conf (Conf Board) 82.30 ▲ 78.30 61.90 93.49 90.91 MSCI EAFE SC (Net) -0.53 3.36 3.36 23.26 9.40 21.70 8.61CPI YoY (Headline) 1.50% ▲ 1.10% 1.50% 2.40% 4.20% MSCI EM (Net) 3.07 -0.43 -0.43 -1.43 -2.86 14.48 10.11CPI YoY (Core) 1.70% ▲ 1.60% 1.90% 2.20% 4.20% Barclays US Agg Bond -0.17 1.84 1.84 -0.10 3.75 4.80 4.46PPI YoY 1.70% ▲ 1.30% 1.10% 2.30% 3.80% BofA ML 3 Mo US T-Bill 0.00 0.01 0.01 0.07 0.08 0.12 1.65M2 YoY 6.10% ▼ 6.40% 7.40% 5.90% 6.60% NCREIF ODCE (Gross) N/A 2.47 2.47 13.71 13.04 7.30 7.17US Dollar Total Weighted Index 76.86 ▲ 76.77 76.25 86.60 94.47 Wilshire US REIT 0.93 10.13 10.13 4.42 10.52 29.24 8.19WTI Crude Oil per Barrel $102 ▼ $103 $97 $51 $40 HFN FOF Multi-Strat -0.65 0.76 0.76 6.34 2.62 4.54 2.88Gold Spot per Oz $1,284 ▼ $1,326 $1,597 $331 $341 DJ-UBS Cmdty (TR) 0.41 6.99 6.99 -2.10 -7.37 4.24 0.43

All data courtesy of Bloomberg Professional Service. Performance is annualized for periods greater than one year. 20- and 40-year average Gold spot prices are adjusted for inflation. CPI figures are seasonally adjusted.NCREIF performance is reported quarterly; MTD and QTD returns are shown as "N/A" on interim-quarter months.Performance for the HFN FOF Multi-Strat Index is preliminary and subject to change.

Treasury Yield Curve

Crude oil's price fell by 0.98% during the month but has increased by 4.47% over one year.

General Market Commentary

Equity markets posted mixed returns in March as the S&P 500 (Cap Wtd) Index returned 0.84% and the MSCI EAFE (Net) Index returned -0.64%. Emerging markets returned 3.07% as measured by the MSCI EM (Net) Index.

The Barclays US Aggregate Bond Index returned -0.17% in March, outperforming the Barclays US Treasury return of -0.41%, as measured by the Barclays US Treasury Intermediate Term Index. International fixed income markets returned -0.02%, as measured by the Citi Non-US World Government Bond Index.

Public real estate, as measured by the Wilshire US REIT Index, returned 0.93% in March and 29.24% over the trailing five-year period.The Venture Economics All Private Equity Index returned 17.69% for the trailing one-year period and 10.38% for the trailing five-year period ending September 2013.Absolute return strategies, as measured by the HFN FOF Multi-Strat Index, returned -0.65% for the month and 6.34% over the trailing one-year period.

Federal Reserve chair Janet Yellen addressed the subpar U.S. job market, reassuring investors that interest rates would be kept low “for some time” after the Fed’s monthly bond purchases are phased out, which most expect by the end of 2014.

Residents of Crimea voted overwhelmingly in favor of joining Russia, merely days after its local parliament called for a referendum decried foul by the West. Russia incurred sanctions on select officials, downward pressure on the ruble and further decreases in foreign investment.

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

3/31/2014 2/28/2014 3/28/2013 3/31/2011

Page 13

Performance Related CommentsPerformance shown is gross of fees unless otherwise noted. Fiscal year ends on June 30th.Performance is annualized for periods greater than one year.Absolute Return market values are lagged 1 month and provided by J.P. Morgan. Performance for Absolute Return is preliminary and shown as of the most current month end.Historical performance for Crestline Enchantment Fund Class A shares prior to January 2011 consists of Crestline Partners LP. Class B shares before this date consist of Vintage Classic LLC.Performance for Mariner Matador, LLC prior to August 2008 consists of Mariner Select LP.Real Estate, Private Equity, and Real Return investments assume a 0.00% return during interim months. Real Estate and Private Equity investments are lagged 1 quarter.Since Inception performance shown for the HFRI FOF Comp Index is as of October 1, 2005.Indices show N/A for since inception returns when the fund contains more history than the corresponding benchmark.Since Inception dates reflect first month of reliable and verifiable data and may not reflect the actual full month following initial funding.RVK began calculating performance in May 2011 using data provided by J.P. Morgan. Historical performance prior to this date was provided by NEPC.PIMCO Unconstrained, Loomis Sayles Unconstrained, and Brookfield Infrastructure II were funded in November 2013.

Custom Index CommentsLand Grant Policy Index is based on the target allocation and currently consists of 30% Russell 1000 Index, 5% Russell 2500 Index, 9% MSCI EAFE Index (Net), 6% MSCI Emerging MarketsIndex (Net), 14% Barclays US Aggregate Bond Index, 6% Credit and Structure Finance Composite, 7% HFRI FOF Composite Index (Lagged 1 Month), 10% 80/20 Cambridge Private EquityIndex (Lagged 1 Quarter), 8% NCREIF ODCE Index (Net) (Lagged 1 Quarter), and 5% Real Return Custom Index.Severance Tax Policy Index is based on the target allocation and currently consists of 30% Russell 1000 Index, 5% Russell 2500 Index, 9% MSCI EAFE Index (Net), 6% MSCI Emerging MarketsIndex (Net), 14% Barclays US Aggregate Bond Index, 6% Credit and Structure Finance Composite, 7% HFRI FOF Composite Index (Lagged 1 Month), 10% 80/20 Cambridge Private EquityIndex (Lagged 1 Quarter), 8% NCREIF ODCE Index (Net) (Lagged 1 Quarter), and 5% Real Return Custom Index.Global Equity Custom Index consists of 70% Russell 3000 Index, 18% MSCI EAFE Index (Net), 12% MSCI Emg Mkts Index (Net).Non-US Equity Custom Index consists of 60% MSCI EAFE Index (Net) and 40% MSCI Emg Mkts Index (Net).Fixed Income Custom Index consists of the Barclays US Agg Bond Index prior to March 2007 and is calculated using beginning of month weights applied to each corresponding primarybenchmark return thereafter.C&SF Primary Benchmark consists of 45% ABX.HE.BBB-06-1, 45% S&P LTSA 1100 Names Index, and 10% CDX 15 (Lagged 1 Month) through December 31, 2013, and 50% BofA ML USHigh Yield Master II Index, 50% Credit Suisse Leveraged Loan Index thereafter.C&SF Secondary Benchmark consists of 45% ABX.HE.BBB-06-1, 45% S&P LTSA 1100 Names Index, and 10% CDX 15 (Lagged 1 Month) through December 31, 2013, and 33% BofA ML USHigh Yield Master II Index, 33% Credit Suisse Leveraged Loan Index, and 33% Barclays US Corporate Investment Grade Index thereafter.80/20 Cambridge Private Equity Index is lagged 1 quarter and is a blend of 80% Cambridge Private Equity Index and 20% Cambridge Venture Capital Index. Q1 2014 performance is not yetavailable, so it assumes a 0.00% return.Venture Economics All Private Equity Index is lagged 1 quarter.NCREIF/Townsend Weighted Benchmark is calculated by Townsend, lagged 1 quarter, and is a weighted benchmark based on target allocations to each real estate sector in the universe.Real Return Custom Index consists of 35% Barclays US Treasury: US TIPS Index, 25% Dow-Jones UBS Commodity Index (TR), 20% NCREIF Timberland Index, and 20% CPI + 3%.

Absolute Return StrategiesFund of Hedge Funds - Event Driven

Mariner Matador, LLC

Fund of Hedge Funds - Equity HedgeAAM High Desert Fund

Fund of Hedge Funds - Relative ValueCrestline Enchantment Fund Class A

LiquidationCrestline Enchantment Fund Class BCrestline Offshore RecoveryAustin Capital Safe Harbor QP FundCT Preferred Investors Management LLC


Addendum


Page 14

New Mexico State Investment CouncilPublic Funds $1 Billion or Larger Performance AnalysisMarch 31, 2014

Wilshire TUCS(TM)

Trust Universe Comparison Service

The Market Environment March 31, 2014

Global stock markets stumbled slightly out of the gate in the first quarter of 2014,

but still managed to post gains by quarter-end. The year started with signs of a

manufacturing slowdown in China and increased volatility in emerging market

currencies, as well as an unusually harsh winter that held back retail sales and

residential real estate sales activity in the U.S. This unnerving market environment

drove many investors into safe-haven assets including gold and U.S. Treasury paper.

However, the U.S. economy still managed to expand, with fourth quarter 2013

growth in real Gross Domestic Product coming in at a 2.6% annual rate, albeit down

from the finalized 4.1% rate in the third quarter. Janet Yellen assumed the position of

chairperson of the Federal Reserve with the March meeting; her initial comments

suggested a possible rate hike in mid-2015, although subsequent statements seemed

to soften that assertion. At the end of the quarter, the conflict between Russia and

Ukraine over control of the Crimea loomed large over capital markets; oil and gas

prices, already trending upward over the quarter in the face of heightened demand,

reversed a retreat from near-term peaks and ended the quarter with another price

rally. Consumer-level inflation in the U.S. jumped in 2014; the Consumer Price

Index, All Urban Consumers (CPI-U) rose 1.39% in the first quarter, again reversing

the 0.47% price retreat seen in the fourth quarter of 2013. The ten-year breakeven

inflation rate ended the quarter at 2.23%, a scant basis point lower than its level as of

year-end 2013.

The U.S. stock market, represented by the Wilshire 5000 Total Market IndexSM,

rose 2.04% in the first quarter of 2013, besting the 1.81% return of the Standard &

Poor’s 500 Index and marking the seventh consecutive quarter of positive

performance for U.S. equities. Small-capitalization stocks outpaced larger-cap issues

in the first quarter, with the Wilshire US Small-Cap IndexSM returning 2.57%

versus the 1.95% return of the Wilshire US Large-Cap IndexSM. Micro-cap stocks

yielded even better performance, with the Wilshire US Micro-Cap IndexSM posting

a strong 4.46% gain. Reflecting investor rotation into less-volatile stocks, value-

oriented equities outperformed growth-oriented issues (Wilshire US Large-Cap

Value IndexSM, 2.70%; Wilshire US Large-Cap Growth IndexSM, 1.04%; Wilshire

US Small-Cap Value IndexSM, 2.93%; Wilshire US Small-Cap Growth IndexSM,

2.16%). Reinforcing the theme of markets favoring value, the strongest economic

sectors of the Wilshire 5000 during the first quarter were Utilities (9.55%), Health

Care (5.87%) and Financials (3.14%); the weakest performance was posted by

Consumer Discretionary (-2.14%), Telecommunication Services (0.32%) and

Consumer Staples (0.47%) stocks. Public-market real estate stocks staged a

remarkable rally in the first quarter despite the harsh weather plaguing much of the

country, with lower interest rates providing support; the Wilshire U.S. Real Estate

Securities Index returned 9.99% over the quarter, the strongest performers of the

broad stock sectors as well as real assets in general.

Most of the drop in U.S. interest rates occurred in January, with the bellwether 10-

year U.S. Treasury rate dropping from 3.04% to 2.67% from December 31, 2013 to

January 31, 2014; bonds in that maturity remained fairly range-bound for the rest of

the quarter before settling at 2.73% as of March 31, 2014. However, over the quarter

the yield on two-year U.S. Treasuries actually rose six basis points to 0.44%, while

the 30-year U.S. Treasury yield fell 40 bps to 3.56%, resulting in a flatter overall

yield curve, with the short end stubbornly trading at near-zero rates. Unsurprisingly,

long-term Treasury security prices soared while shorter-term paper yielded much

flatter performance (Barclays U.S. Treasury Long, 7.10%; Barclays U.S. Treasury 1-

3 Years, 0.14%). Credit spreads continued to tighten as investors sought yield

anywhere they could find it, be it investment-grade (Barclays U.S. Investment-Grade

Corporate, 2.94%) or high-yield (Barclays U.S. High Yield, 2.98%). Mortgage- and

asset-backed securities also managed to outperform Treasuries (Barclays U.S.

Securitized, 1.55%; Barclays U.S. Treasury, 1.34%), helping the Barclays U.S.

Aggregate achieve a 1.84% return in the first quarter, its strongest performance since

the second quarter of 2012.

Global stock markets dealt with lingering concerns over economic and political

uncertainty, especially in emerging market economies; the turmoil between Russia

and Ukraine late in the quarter exacerbated tensions and drove some investors to sell

stocks and rotate into classic safe-haven assets. However, developed markets

managed flat to slightly-positive performance overall (MSCI EAFE net dividends:

0.28% local currency, 0.66% U.S. dollar). European stocks exhibited stronger

performance than Asia-Pacific equities, as stronger economic growth and attractive

fundamentals brought buyers back into the fold (MSCI Europe, net: 1.82% local,

2.1% USD; MSCI Pacific, net: 4.68% local, 2.51% USD). Despite the events

unfolding in eastern Europe and the considerable drag of a sluggish China, emerging

market stocks ended the quarter with only slight losses, despite gains in March

(MSCI Emerging Markets, net: 0.53% local, 0.43% USD). Developed market

global bonds actually enjoyed somewhat stronger performance than U.S. paper

(Barclays Global Aggregate Ex-US: dollar-hedged, 2.16%; USD terms, 2.79%),

while emerging-market debt lagged slightly behind (Barclays Emerging Markets

Local Currency Government Universal: dollar-hedged, 1.02%; USD terms, 1.68%).

1


The Market EnvironmentQuarter Ending March 31, 2014

1 Quarter 2 Quarters 3 Quarters 1 Year 5 Years 10 Years

Market Index Returns

S&P 500 1.80 12.51 18.41 21.86 21.15 7.42

Wilshire 5000 2.04 12.35 19.13 22.42 21.74 7.91

Dow Jones Industrial -0.15 10.05 12.38 15.65 19.83 7.48

MSCI EAFE (Net) 0.66 6.41 18.72 17.56 16.01 6.53

Citigroup Broad 1.82 1.67 2.25 -0.07 4.55 4.57

Barclays Govt/Credit 1.98 1.94 2.31 -0.26 5.08 4.41

Citigroup World Govt 2.67 1.55 4.48 1.37 3.84 4.23

91-Day Treasury Bill 0.01 0.03 0.05 0.07 0.11 1.65

Consumer Price Index 1.39 0.92 1.03 1.35 2.09 2.33

S & P 500 Sector Performance

Energy 0.79 9.21 14.84 14.41 14.88 12.19

Materials and Services 2.86 13.82 25.55 23.29 17.61 7.67

Industrials 0.14 13.68 23.81 27.29 22.96 7.55

Consumer Discretionary -2.80 7.71 16.10 24.01 26.86 8.06

Consumer Staples 0.50 9.21 10.09 10.65 16.91 8.63

Health Care 5.81 16.52 24.47 29.25 20.05 8.31

Financials 2.61 13.21 16.46 24.91 21.70 -0.76

Information Technology 2.28 15.84 23.51 25.59 20.23 7.15

Telecom 0.47 5.96 1.30 2.32 10.41 5.79

Utilities 10.09 13.17 13.38 10.28 12.53 8.60

Wilshire TUCS(TM)2


The Market EnvironmentHistorical Perspective

Quarter Ending March 31, 2014

Wilshire TUCS(TM)3


Performance ComparisonTotal Returns of Master Trusts - Public : Plans > $1 Billion

Cumulative Periods Ending : March 31, 2014

Percentile Rankings 1 Qtr 2 Qtrs 3 Qtrs 1 Year 2 Years 3 Years 4 Years 5 Years 7 Years 10 Years

5th 3.25 8.47 14.56 15.70 13.16 10.28 11.66 17.09 6.97 8.2025th 2.42 7.90 13.46 14.06 12.40 9.67 10.90 15.11 5.85 7.4350th 2.07 7.31 12.30 12.53 11.47 8.99 10.35 13.94 5.42 7.0775th 1.83 6.31 11.00 10.33 10.08 8.10 9.27 13.22 4.97 6.5795th 1.41 3.97 6.26 4.22 5.88 5.63 6.88 9.31 4.28 5.58

No. Of Obs 78 77 77 77 76 75 73 72 71 67

LAND GRANT 2.01 (57) 7.22 (53) 11.93 (56) 13.00 (38) 11.38 (53) 8.63 (62) 9.99 (58) 13.16 (75) 5.15 (63) 6.73 (70)NEW MEXICO SIC 2.02 (57) 7.33 (47) 12.03 (55) 13.06 (38) 11.38 (53) 8.59 (63) 9.90 (63) 12.98 (76) 5.01 (70) 6.60 (71)SEVERANCE TAX 1.98 (57) 7.31 (50) 11.86 (59) 12.76 (46) 10.97 (56) 8.11 (73) 9.42 (72) 12.49 (83) 4.32 (93) 6.07 (90)

Wilshire TUCS(TM)4


Performance ComparisonTotal Returns of Master Trusts - Public : Plans > $1 Billion

Consecutive Time Periods: March 31, 2014

Percentile Rankings Mar. 14 Dec. 13 Sep. 13 Jun. 13 Mar. 13 Mar. 14 Mar. 13 Mar. 12 Mar. 11 Mar. 10

5th 3.25 6.03 6.11 1.58 6.51 15.70 12.78 9.71 17.07 43.9025th 2.42 5.60 5.36 0.82 5.45 14.06 10.95 5.06 15.24 35.8150th 2.07 5.06 4.65 0.05 4.76 12.53 10.24 4.26 14.22 31.0975th 1.83 4.24 4.21 -0.53 4.30 10.33 9.32 3.66 12.75 25.6395th 1.41 1.82 1.79 -2.57 1.79 4.22 7.35 2.65 8.54 16.73

No. Of Obs 78 77 78 78 78 77 77 76 74 73

LAND GRANT 2.01 (57) 5.11 (48) 4.39 (63) 0.96 (16) 4.98 (39) 13.00 (38) 9.77 (67) 3.34 (84) 14.17 (51) 26.76 (66)NEW MEXICO SIC 2.02 (57) 5.20 (43) 4.38 (64) 0.92 (19) 4.93 (40) 13.06 (38) 9.73 (68) 3.22 (85) 13.93 (55) 26.18 (69)SEVERANCE TAX 1.98 (57) 5.23 (40) 4.24 (72) 0.80 (25) 4.55 (61) 12.76 (46) 9.20 (76) 2.60 (95) 13.48 (61) 25.66 (73)

Wilshire TUCS(TM)5


Performance ComparisonTotal Equity Returns of Master Trusts - Public : Plans > $1 Billion



5th 2.27 11.53 19.99 22.85 19.71 14.13 15.79 24.76 7.53 9.3825th 1.91 10.33 18.80 20.04 16.42 12.08 13.51 20.79 5.40 7.8850th 1.62 9.42 17.75 18.96 15.69 11.13 12.36 20.01 4.83 7.4175th 1.40 8.60 17.08 17.02 14.57 9.71 11.50 18.70 4.19 6.8395th 1.15 6.93 13.08 13.06 12.54 7.98 9.79 17.65 3.15 6.36

No. Of Obs 54 50 50 49 46 45 39 37 32 28

NEW MEXICO SIC 1.15 (95) 9.42 (50) 17.54 (60) 18.88 (54) 14.64 (68) 9.66 (79) 11.48 (77) 18.55 (81) 6.00 (12) 8.03 (17)Total Equity Custom Be 1.41 (73) 9.65 (37) 17.68 (54) 18.31 (56) 15.27 (56) 10.82 (54) 12.16 (52) 19.90 (52) 5.28 (31) 8.05 (13)Russell 3000 1.97 (15) 12.27 (1) 19.40 (7) 22.61 (5) 18.53 (5) 14.62 (1) 15.31 (10) 21.93 (15) 6.60 (5) 7.86 (25)MSCI World Ex US (N) 0.51 (100) 5.30 (99) 15.92 (81) 12.31 (96) 10.32 (99) 4.15 (100) 6.33 (100) 15.52 (100) 1.70 (99) 7.12 (60)

Wilshire TUCS(TM)6


Performance ComparisonUS Equity Returns of Master Trusts - Public : Plans > $1 Billion



5th 2.89 13.89 23.15 27.42 21.46 18.95 22.03 31.01 8.15 10.5425th 2.26 12.52 20.08 23.66 18.86 14.85 15.79 22.79 6.84 8.4050th 1.98 12.07 19.02 22.50 18.11 14.32 15.07 21.55 6.42 7.3775th 1.68 10.53 17.09 18.96 15.81 12.02 13.15 19.96 4.64 6.7395th 1.34 6.24 12.73 13.24 12.04 7.30 9.23 15.27 3.58 5.94

No. Of Obs 62 57 57 56 53 52 45 43 36 31

NEW MEXICO SIC 1.85 (66) 12.07 (50) 19.83 (33) 23.52 (30) 17.87 (53) 12.52 (69) 13.83 (70) 20.02 (72) 7.28 (14) 8.50 (18)Russell 3000 1.97 (50) 12.27 (39) 19.40 (37) 22.61 (46) 18.53 (38) 14.62 (36) 15.31 (40) 21.93 (38) 6.60 (36) 7.86 (31)

Wilshire TUCS(TM)7


Performance ComparisonNon-US Equity Returns of Master Trusts - Public : Plans > $1 Billion



5th 2.87 8.77 19.99 19.18 15.90 9.43 15.44 25.32 9.33 12.5425th 1.21 6.74 17.83 15.26 13.16 6.68 8.71 17.65 3.15 8.7450th 0.83 6.00 16.58 13.20 11.82 5.72 7.88 16.62 2.43 7.5875th 0.51 5.50 15.52 11.37 10.72 4.68 7.04 15.59 0.50 6.2695th -0.24 3.41 9.37 6.11 6.48 1.22 2.54 12.55 -0.82 4.04

No. Of Obs 62 56 56 55 49 49 42 39 33 26

NEW MEXICO SIC -0.62 (99) 3.03 (97) 11.91 (87) 7.62 (89) 6.38 (99) 1.86 (90) 4.62 (89) 15.44 (77) 1.98 (56) 7.47 (54)MSCI World Ex US (N) 0.51 (75) 5.30 (82) 15.92 (69) 12.31 (61) 10.32 (81) 4.15 (85) 6.33 (87) 15.52 (75) 1.70 (59) 7.12 (54)

Wilshire TUCS(TM)8


Performance ComparisonTotal Fixed Income Returns of Master Trusts - Public : Plans > $1 Billion



5th 3.31 4.74 7.86 6.64 9.94 8.63 9.02 13.22 8.94 7.7025th 2.75 3.34 4.83 1.87 4.71 6.50 6.41 9.51 6.45 5.7350th 2.35 2.89 4.06 0.83 3.53 5.02 5.72 8.13 5.96 5.2775th 2.04 2.36 3.04 0.21 2.89 4.34 4.96 6.86 5.33 4.8195th 1.70 1.72 1.29 -0.94 1.50 2.95 4.21 5.23 4.14 4.20

No. Of Obs 57 51 51 50 47 45 37 35 31 27

NEW MEXICO SIC 2.39 (48) 3.83 (17) 4.83 (25) 2.78 (15) 6.72 (13) 6.79 (19) 8.65 (8) 9.54 (22) 4.18 (92) 4.30 (91)Barclays US Univ Indx 1.95 (78) 2.18 (83) 2.94 (79) 0.51 (66) 2.59 (81) 4.23 (79) 4.60 (81) 5.73 (90) 5.18 (85) 4.78 (75)

Wilshire TUCS(TM)9


Performance ComparisonTotal Private Equity Returns of Master Trusts - Public : Plans > $1 Billion



5th 7.32 14.64 17.68 21.76 24.15 15.40 17.37 15.88 11.56 15.2325th 4.88 10.50 13.79 18.54 15.92 14.12 15.26 14.82 10.21 14.4650th 4.38 8.42 11.62 15.89 14.06 11.82 13.44 12.73 8.43 11.7075th 2.97 5.71 8.66 10.18 9.88 8.83 10.96 8.73 5.91 9.5595th 0.14 2.65 3.08 3.25 5.19 -3.05 5.66 5.12 4.33 6.11

No. Of Obs 52 47 46 45 42 39 36 32 27 18

NEW MEXICO SIC 4.59 (38) 9.29 (37) 12.33 (38) 15.29 (52) 13.57 (57) 11.18 (52) 12.62 (55) 7.96 (81) 8.41 (54) 10.30 (68)

Wilshire TUCS(TM)10


Performance ComparisonTotal Real Estate Returns of Master Trusts - Public : Plans > $1 Billion



5th 10.47 10.27 15.40 15.36 25.16 19.62 23.25 26.34 5.68 11.8925th 4.54 7.53 9.63 13.29 13.11 13.27 15.02 10.33 2.93 9.7250th 3.16 6.25 7.80 11.80 11.18 11.09 12.01 4.74 1.22 7.3175th 1.84 4.99 6.45 10.18 9.23 10.35 10.88 2.48 -0.24 2.8795th -4.32 0.00 1.35 0.28 2.38 2.50 6.32 -2.11 -4.08 1.79

No. Of Obs 43 43 43 42 40 39 34 31 26 17

NEW MEXICO SIC 3.32 (45) 4.99 (75) 7.37 (60) 12.45 (35) 9.23 (75) 9.53 (85) 6.32 (96) -2.11 (95) -1.09 (83) NCREIF Property Indx 2.74 (57) 5.34 (62) 8.07 (45) 11.17 (60) 10.84 (55) 11.69 (45) 12.76 (40) 7.89 (37) 5.10 (5) 8.65 (31)Wilshire RESI 9.99 (8) 9.16 (10) 6.10 (77) 4.61 (91) 9.12 (75) 10.38 (72) 13.83 (37) 29.31 (1) 1.92 (29) 8.21 (37)

Wilshire TUCS(TM)11


Monthly Investment Summary

For the Month Ending March, 2014

Global financial markets continued the trend of choppy, sideways action in March. Both U.S. and foreign equities rose less than 1% on the month, in very low-volatility action. Yields on Treasuries rose modestly in the belly of the curve (2-10yrs) by around 15bps and though credit spreads tightened slightly, the fixed income markets benchmark showed a 17 bps loss.

Land Grant Permanent Fund (LGPF) and the Severance Tax Permanent Fund (STPF) returns are not available as of this writing, and nor is the composite finalized, but returns on the month should come in around a positive 70-90bps. This should be ahead of benchmarks by a few basis points, stretching the trailing one-year performance premium over the policy benchmark to 74 basis points – ahead of expectations, as we generally expect 50-75bps on average in trailing one-year periods over a cycle with higher excess return in the weaker periods and less in the stronger periods. Total fund composite is still in excess of 13% on the year; the three year period has compounded at north of 8.50% and five years trailing remains above 13% compounded annually. The RVK preliminary monthly flash performance report for March, 2013 is available.

Portfolio Activity Portfolio activity in March was again light; primarily funding of capital calls in the Real Return portfolio. Asset allocation – Portfolio weights for both the LGPF and STPF were quite close to the interim policy targets; with the slowdown and choppiness in the stock market, pressures on rebalancing bands are minimal.

Strategy selection – No changes to strategies in the month.

Active portfolio management – Global equity performance backed up relative to the Council’s passive benchmark again in the month, with the trailing one-year premium cycling down to just 20 basis points. Investment management fees for the global equity portfolio are approximately 30 basis points, and our over-the-cycle expectation for excess return is 60-90bps. Month-to-month this number can be volatile; as you recall it was 70bps for the trailing one-year period last month. At issue are the domestic large-cap growth managers T. Rowe Price and JP Morgan, as discussed below.

The domestic equity portfolio pulled back sharply against the benchmark on the month, losing 21 bps against a positive 53 basis point return for the Russell 3000 index. On a trailing one-year basis the portfolio continues to run ahead of the benchmark by approximately 90bps or a little over 3.5x fees, but recently, the Council’s growth managers have taken a downward turn. Staff has been in discussions with the managers and as of yet remains unconcerned. On the trailing one-year numbers, T. Rowe Price

remains an unexpectedly-high 1,100 basis points ahead of their benchmark and JPMorgan a more modest 110 basis points.

The small-cap managers resumed their out-performing way in the month, moving ahead by 13bps on the month, bringing the one-year total to nearly 1,000bps excess return. The international equity portfolio at long last put up a good month as the emerging markets perked up. On the trailing one-year, the portfolio lags by a little over 200bps, though perhaps is finally on an improving trend.

While absolute returns are low in fixed income, active management performance remains very good, showing around 250bps over a barely-positive benchmark in the one year timeframe. Those markets are changing, however, as the credit cycle ages, and staff and consultant are beginning discussions regarding strategy and manager line-up as of now with plans for a structure study to be presented to the Council in September.

Market Environment Last month in this space we discussed “complacency” – the ongoing need of being continually diligent to not become complacent in our actions or expectations; the increased risk of complacency after a period of strong returns and low volatility like we’ve just come through; and some of the things that we are doing to avoid becoming complacent and avoid suffering the potential consequences of complacency.

Through not written about here first, we have, in our CIC and Council meetings, also recently discussed “innovation”, another timely topic. In summary, with the back-to-back equity market “100-year-floods” in the first decade of the 2000s (the severe market declines of 2000-2001 and 2008-2009) and the 50-year-low interest rates that presently exist, public fund fiduciaries have challenged themselves and their investment staffs, consultants and managers to revisit the “60/40” portfolio construction model and to perhaps build a better “mousetrap” to address the future. From this challenge has sprung many ideas – some mere re-hash of past strategies or extreme implementations of accepted strategies; some truly unique; some even radical. We’ve mainly concluded that there isn’t really a great deal “new under the sun”, and of the truly unique innovations, the jury remains out regarding the efficacy of most. Ergo, adopting untested strategies must be done with much caution -- and perhaps be limited to new ideas based solidly on tested and proven principles as, generally, we concluded, public funds are funds to be handled conservatively and not to be broadly experimented with.

We’ll leave this section with those two summaries this month and with the expectation that this section of the Monthly Summary will continue to morph from solely a simple recap of the economic and financial markets scene into one that will center around discussion of broader themes, like the two above.

Tab 4: State Investment Officer’s Report (Moise)

A. Investment Matters

1. Current NAV and distributions

2. Investment performance

B. Council Matters

1. June/July SIC & committee meetings:

a. SIC – Monday 6/30 @ 2:30pm; & Tuesday, 7/1 @ 9:00am, Cabinet Room

b. Audit – Monday 6/30 at 1:00pm, Governor’s small conference room

c. Governance – Friday 6/20 @ 10:00am, teleconference

d. Investment – Thursday 6/12 @ 11:00am, SIC offices

e. PEIAC – no June, July or August meetings

2. Legislative matters:

a. Constitutional amendment 5 - vote 11/4 – strategy update

b. 2015 legislative agenda

• Increasing STPF contributions

• Updating SIC enabling statute

• Liability protections

• Council fiduciary responsibilities

3. Strategic plan implementation progress

C. Office Administration

1. Staffing:

a. Sourcing 2 positions – accounting & IT

b. Pending compensation-related matters

2. D&O/E&O

D. External Relations:

1. Artesia Rotary – May 20, Portales Rotary – May 21, Hobbs Rotary – May 22 (& editorial boards in each city)

2. Press kit

3. Website

4. SWF Consortium

NEW MEXICO STATE INVESTMENT COUNCIL DASHBOARD

May 2014

FY CONTRIBUTIONS vs. DISTRIBUTIONS

l

Performance % (as of 3/31/14) 7.5% Target

CYTD 1 yr 3 yr 5 yr 10 yr LGPF 2.01 12.99 8.63 13.15 6.73 STPF 1.98 12.76 8.11 12.50 6.07

PPeennddiinngg RRFFPPss

Real Assets – TIPS Real Assets – Currency Real Assets – Commodities Real Estate - REIT Real Assets – MLP Fund wide – Transition manager

15

6

RFP Chart Completed

Contract process

RFPs to be issued

Active RFP

Mission To protect and grow the state’s permanent endowment

funds for current and future generations, through prudent, professional investment management.

Total Assets (as of 6/30 of each year)

2007 $16.141,324.154 2008 $15,218,664,865

2009 $11,811,170,294

2010 $12.999,636,673

2011 $15.452,135,573

2012 $15,409,412,731

2013 $17,168,943,863

11.4% increase FY12→FY13

Fund Statistics Current NAV: $19.364 (5/14/14) LGPF - $13.712B (3/31/14) STPF - $ 4.506B (3/31/14)

2013 High NAV: $18.618B (12/31/13) 2013 Low NAV: $16.188B (1/2/13) FY 13 Distributions: $703,019,232 (LG & ST) FY 13 Contributions: $505,817,455 (LG & ST)

LGPF Contributions LGPF Distributions 2010 $330,275,443 2010 $525,512,604 2011 $411,495,508 2011 $535,903,008 2012 $529,037,726 2012 $553,418,316 2013 $505,817,116 2013 $526,846,548 STPF Contributions STPF Distributions 2010 $3,488,067 2010 $187,072,285 2011 $7,617,058 2011 $184,570,731 2012 $103,888,028 2012 $183,423,504 2013 $339 2013 $176,172,684

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

2010 2011 2012 2013

ST Distributions

LG Distributions

ST Contributions

LG Contributions

3/31/14 TUCS PERFORMANCE COMPARISION:

Returns (%) LG ST

Ranking LG ST

1 qtr 2.01 1.98 57 57 1 yr 13.00 12.76 38 46 3 yrs 8.63 8.11 62 73 5 yrs 13.16 12.49 75 83 10 yrs 6.73 6.07 70 90

LGPF PORTFOLIO STRUCTURE/ASSET ALLOCATION CHANGES

2010 Interim Target Actual 3/31/14 Target US Eq 45% US Eq 35% US Eq 35.68% US Eq 31% Int’l Eq 15% Int’l Eq 15% Int’l Eq 13.64% Int’l Eq 15% FI 20% FI 20% FI 22.84% FI 16% Real Ret 0% Real Ret 5% Real Ret 4.50% Real Ret 10% Core RE 5% Core RE 8% Core RE 7.18% Core RE 10% Abs Ret 5% Abs Ret 7% Abs Ret 6.89% Abs Ret 8% PE 10% PE 10% PE 8.98% PE 10%

RECENT SIC COMMITMENTS

Date Firm Asset Type Commitment 1/28/14 Blackstone Real Estate Partners Asia Real estate $50M 1/28/14 Exeter Industrial Value Fund III Real estate $35M 1/28/14 TPG Asia VI, L.P Private equity $100M 1/28/14 TPG Opportunities Partners III, L.P. Private equity $50M 2/25/14 Vista Equity Partners Fund V, L.P. Private equity $100M 2/25/14 NGP Agribusiness Follow-On Fund, L.P Private equity $50M 3/25/14 EnCap Flatrock Midstream Fund III Real return $25M 3/25/14 FS Equity Partners Vii, L.P. Private equity $75M 3/25/14 NMSIC Co-investment Fund –

additional commitment NM private

equity $40M

4/22/14 First Reserve Energy Infrastructure Fund II

Real return $100M

MMaayy IItteemmss ooff IInntteerreesstt

SIC COMBINED JUNE/JULY MEETING SCHEDULE Governor’s Cabinet Room

6/30/2014 7/1/2014

TIME MONDAY TUESDAY 9:00 AM

INVESTMENT VOTING ITEMS – •FIA Timber •Return Target review & vote •State Land Office report •SIO report •Financial matters •Governance matters

10:00 AM

11:00 AM

12:00 PM

1:00 PM AUDIT COMMITTEE

2:30 PM

•Opening matters - approval of May minutes, etc. OTHER INVESTMENT MATTERS •Investment performance report •RVK assumption review •Investment environment •Efficient frontier modeling • PEIAC reporting items

3:00 PM

4:00 PM

BUDGET / STAFF UPDATE:

Total Adjusted Budget FY14: $51,979,550 Actual Expenses YTD: $23,467,784 (4/30/14) Total Obligations: $46,706,563 (4/30/14)

31 authorized FTEs - 24 positions currently filled Open positions: 1 Administrative, 1 Accounting position, 1 IT

Tab 5 CFO report

1. FY 14 Budget-to-Actual Comparison:

The report provided is for the ten month period ending April 30th. No budget shortfalls

are expected through the end of the current fiscal year.

2. Audit Contract:

The draft audit contract and the public accountant (IPA) recommendation was

submitted to OSA on March 21st for approval . The approval process was completed on

May 9th.

3. Audit Services Request for Proposal:

A request for proposal for audit services for FY 15 will be started soon although no formal

selection for external auditor can be made until OSA prints its list of approved firms in late

February of 2015.

4. Budget for FY 15:

The budget for FY 15 was submitted by the due date of May 1st.

Prepared By:

Brent ShippDate:05/09/14

State Investment Council

BUDGET TO ACTUAL COMPARISONS

G:\Kerri\Committees\Audit\Copy of SIC Budget to Actual Comparison for Apr FY 14 v3(for SIC).xls Page 2

B+C= E+F= D-G= H-I=A B C D E F G H I J

FY13 FY14 FY14 FY14 FY14 FY14 FY14 FY14 FY14 FY14

PRIOR YEAR PROJECTEDACTUAL ORIGINAL BUDGET ADJUSTED EXPENDED ENCUMBERED TOTAL UNOBLIGATED EXPENDITURES BALANCE

DESCRIPTION CATEGORY EXPENSES# BUDGET ^ ADJUSTMENTS BUDGET YR-TO-DATE YR-TO-DATE OBLIGATIONS BALANCE TO YR END* AVAILABLE

Personal Services 200 3,233,514 3,704,700 403,000 4,107,700 3,174,577 - 3,174,577 933,123 591,928 341,195 & Employee Benefits

Contractual Services 300 27,754,307 47,412,050 (403,000) 47,009,050 19,730,192 23,164,209 42,894,402 4,114,648 - 4,114,648

Other Operating Costs 400 643,452 862,800 - 862,800 563,015 74,570 637,585 225,215 - 225,215

Other 500 - - - - - - - - - -

TOTAL 31,631,273 51,979,550 - 51,979,550 23,467,784 23,238,779 46,706,563 5,272,987 591,928 4,681,059

# Prior year actual expenses are YTD.

^ Category 200 budget includes $46,200 related to approved 1% salary increase on original budget.

State Investment CouncilCategory Totals

Ten months through 4/30/2014

Page 2

B+C= E+F= H-I=A B C D E F G H I J


SHARE PRIOR YR PROJECTEDCHARTFIELD CHART ACTUAL ORIGINAL BUDGET ADJUSTED EXPENDED ENCUMB TOTAL UNOBLIGATED EXPENDITURES BALANCEDESCRIPTION FIELD EXPENSES BUDGET ADJUSTMENTS BUDGET YR-TO-DATE YR-TO-DATE OBLIGATIONS BALANCE TO YR END* AVAILABLE

Exempt Perm Pos-F/T-P/T 520100 775,952 812,000 57,000 869,000 735,055 0 735,055 133,945 133,195 750Classified Permanent F/T 520300 1,657,051 1,914,000 (79,000) 1,835,000 1,289,189 0 1,289,189 545,811 297,346 248,465Paid Unused Sick Leave 520600 9,722 10,000 4,700 14,700 8,688 0 8,688 6,012 6,000 12Overtime & Other Prem. Pay 520700 475 6,000 0 6,000 475 0 475 5,525 5,000 525Annual/Comp Paid Separ 520800 1,029 1,000 31,300 32,300 27,411 0 27,411 4,889 750 4,139Group Insurance Prem. 521100 174,390 201,000 0 201,000 151,768 0 151,768 49,232 28,813 20,420Retirement Contributions 521200 366,313 454,000 (6,300) 447,700 335,149 0 335,149 112,551 71,427 41,124FICA 521300 164,160 203,000 (8,000) 195,000 136,768 0 136,768 58,232 32,936 25,296Wkrs Comp Assessment 521400 238 200 0 200 199 0 199 1 0 1GSD Wkrs Comp Premium 521410 2,181 3,000 0 3,000 2,100 0 2,100 900 830 70Unemployment Comp. Pre. 521500 2,166 9,000 0 9,000 8,791 0 8,791 209 89 120Employee Liability Ins. Pre. (3) 521600 31,254 35,200 403,300 438,500 438,500 0 438,500 0 0 0Retiree Health Care Contr. 521700 48,582 56,000 0 56,000 40,486 0 40,486 15,514 15,341 173Other Employee Benefits 521900 0 300 0 300 0 0 0 300 200 100

200 3,233,514 3,704,700 403,000 4,107,700 3,174,577 0 3,174,577 933,123 591,928 341,195

Professional Services 535200 27,007,222 44,672,200 (426,000) 44,246,200 19,036,081 21,096,357 40,132,438 4,113,762 0 4,113,762Other Services 535300 47,047 57,500 16,000 73,500 34,907 38,014 72,921 579 0 579Audit Services 535400 118,503 112,350 0 112,350 112,350 0 112,350 0 0 0Attorney Services 535500 520,023 2,500,000 0 2,500,000 483,736 2,016,265 2,500,000 0 0 0Information Technology Services 535600 61,513 70,000 7,000 77,000 63,119 13,573 76,692 308 0 308

300 27,754,307 47,412,050 (403,000) 47,009,050 19,730,192 23,164,209 42,894,402 4,114,648 0 4,114,648

Empl. I/S Mileage & Fares 542100 2,170 3,500 0 3,500 3,360 0 3,360 140 0 140Empl. I/S Meals & Lodging 542200 102 700 2,000 2,700 2,141 0 2,141 559 0 559Board & Comm I/S Travel 542300 23,021 25,000 0 25,000 16,973 3,500 20,473 4,527 0 4,527Transp - Fuel & Oil 542500 325 3,000 0 3,000 121 379 500 2,500 0 2,500Transp - Transp Insurance 542700 0 200 0 200 0 0 0 200 0 200State Transp. Pool Charges 542800 1,596 1,500 700 2,200 1,566 534 2,100 100 0 100Maint - Furn, Fix, Equip. 543200 0 1,000 0 1,000 0 0 0 1,000 0 1,000Maint - Property Insurance 543400 1,041 1,000 200 1,200 1,100 0 1,100 100 0 100Information Technology Maint 543820 14,220 30,000 0 30,000 6,120 511 6,631 23,369 0 23,369Supplies - Inventory Exempt IT 544000 51,786 52,800 0 52,800 37,532 1,912 39,444 13,356 0 13,356Supplies - Office Supplies 544100 9,081 8,000 1,000 9,000 7,731 698 8,430 570 0 570Supplies - Field Supplies 544400 90 0 0 0 0 0 0 0 0 0Supplies - Invent. Exempt 544900 644 1,000 3,500 4,500 3,447 654 4,101 399 0 399Reporting & Recording 545600 0 2,000 0 2,000 0 0 0 2,000 0 2,000GSD-ISD Services 545700 7,294 8,500 0 8,500 3,464 0 3,464 5,036 0 5,036DOIT HCM Assessment Fees 545710 9,920 11,200 0 11,200 11,200 0 11,200 0 0 0Printing & Photo Svcs. 545900 281 500 1,000 1,500 353 136 489 1,011 0 1,011Postage & Mail Services 546100 7,926 9,500 0 9,500 3,857 5,575 9,432 68 0 68Bond Premiums (1) 546200 0 100,000 (25,400) 74,600 0 0 0 74,600 0 74,600Rent of Land & Buildings 546400 277,159 287,000 0 287,000 253,252 25,235 278,486 8,514 0 8,514Rent of Equipment 546500 16,576 18,000 0 18,000 14,891 165 15,056 2,944 0 2,944Communications 546600 3,604 9,100 0 9,100 3,079 2,150 5,229 3,871 0 3,871GSD Communications 546610 53,800 53,000 0 53,000 35,843 0 35,843 17,157 0 17,157Subscriptions & Dues 546700 51,326 75,000 0 75,000 30,587 29,993 60,581 14,420 0 14,420

State Investment CouncilDetail of Expenditures & Encumbrances


Page 3

B+C= E+F= H-I=A B C D E F G H I J


SHARE PRIOR YR PROJECTEDCHARTFIELD CHART ACTUAL ORIGINAL BUDGET ADJUSTED EXPENDED ENCUMB TOTAL UNOBLIGATED EXPENDITURES BALANCEDESCRIPTION FIELD EXPENSES BUDGET ADJUSTMENTS BUDGET YR-TO-DATE YR-TO-DATE OBLIGATIONS BALANCE TO YR END* AVAILABLE

State Investment CouncilDetail of Expenditures & Encumbrances


Employee Training & Educ. 546800 28,852 20,000 0 20,000 17,552 1,620 19,172 828 0 828Advertising 546900 1,065 5,000 0 5,000 3,495 1,255 4,750 250 0 250DO-IT Assessment fee 547100 0 0 0 0 0 0 0 0 0Misc. Expense 547900 965 2,500 0 2,500 1,817 96 1,913 587 0 587Prior Yr Bills (2) 547999 39,269 65,000 17,000 82,000 81,965 0 81,965 35 0 35Information Technology Equip. 548300 0 10,000 0 10,000 0 0 0 10,000 0 10,000Empl. O/S Mileage & Fares 549600 23,933 40,800 0 40,800 13,534 20 13,554 27,246 0 27,246Empl. O/S Meals & Lodging 549700 17,406 18,000 0 18,000 8,036 137 8,173 9,827 0 9,827

400 643,452 862,800 0 862,800 563,015 74,570 637,585 225,215 0 225,2150

Other Financing Uses 555100 0 0 0 0 0 0 0 0 0 0.

500 0 0 0 0 0 0 0 0 0 0Total 31,631,273 51,979,550 0 51,979,550 23,467,784 23,238,779 46,706,563 5,272,987 591,928 4,681,059

(2) SIC is budgeting for prior year bills paid out of current budget. Current budget is largely for year-end quarterly billings of investment managers exceeding the encumbrance.(3) Investigated General Liability rates of $438,500. Received approval for a budget transfer for $403,000 from the 300s which was the difference to the existing budget amount.

Prepared by: Brent Shipp

Date: 05/09/14

(1) The State's Budget Review System (BRS) automatically calculated 100K for the Bond Premiums, we have researched and this expenditure has not occurred over the last several years. We have budgeted 100K until we know more about the need for such an expenditure.

New Mexico


Investment Holdings Report

April 30, 2014

FY 2014

Description

Managed Net Assets

Land Grant Permanent Fund

Severance Tax Permanent Fund

Tobacco Settlement Permanent Fund

Water Permanent Fund

Third Party Investors Asset Allocation

Third Party Investors Allocation by Pool

Change in Market Values for Month by Asset Class

Change in Market Values for Month for Investment Pools Detail by Manager

Change in Market Values for Month for Permanent Funds

Change in Market Values for Month for Third Party Investors

Notes to Investment Holdings Report 18

Index

Investment Holdings ReportApril 30, 2014

FY 2014

Page No.

1

2

3

4

5

14-17

6

7

8

9-11

12-13

Managed Net AssetsApril 30, 2014

Cash & Accrued Other Assets % ofSecurities Income & Liabilities Net Assets Total

Equities

Domestic Equities:Large Cap Pools

Large Cap Active Pool 2,349,752,312 97,671,202 2,170,374 2,449,593,887 12.72%Large Cap Index Pool 2,925,329,633 462,279 - 2,925,791,912 15.20%Large Cap Enhanced Index Pool 544,456,211 1,705,997 (551,652) 545,610,557 2.83%

Total Large Cap Equities 5,819,538,155 99,839,478 1,618,722 5,920,996,355 30.76%

Small/Mid Cap PoolMid/Small Cap Pool 624,859,511 54,896,486 (2,664,903) 677,091,095 3.52%Small/Mid Cap Index Pool 88,889,791 8 88,889,799 0.46%Small/Mid Cap Enhanced Index Pool 199,662,929 854,785 366,065 200,883,779 1.04%

Total Small/Mid Cap Equities 913,412,232 55,751,280 (2,298,838) 966,864,673 5.02%

Total Domestic Equities 6,732,950,387 155,590,758 (680,116) 6,887,861,015 35.78%

International PoolsNon-US Developed Markets Index Pool 120,201,845 4,282,997 - 124,484,843 0.65%Non-US Emerging Markets Index Pool 516,964,406 3,065,580 - 520,029,985 2.70%Non-US Developed Markets Active Pool 1,241,342,776 24,774,893 (316,848) 1,265,800,821 6.58%Non-US Emerging Markets Active Pool 756,196,083 16,547,578 (1,199,971) 771,543,690 4.01%

Total International Equities 2,634,705,111 48,671,048 (1,516,819) 2,681,859,339 13.93%

Total Equities 9,367,655,497 204,261,805 (2,196,935) 9,569,720,355 49.71%

Fixed Income Core Bonds Pool 3,042,420,377 57,554,054 (116,247,206) 2,983,727,224 15.50%Unconstrained Fixed Income Pool 406,457,846 93,128,921 (8,556,374) 491,030,393 2.55%Credit & Structured Finance 918,762,244 40,499,850 959,262,094 4.98%

Total Fixed Income 4,367,640,467 191,182,825 (124,803,581) 4,434,019,696 23.03%

Other Securities and Cash 126,231,953 40,611,736 166,843,689 0.87%

Real Estate 1,161,819,588 87,320,657 1,249,140,244 6.49%

Real Return 703,682,612 89,224,623 (3,353,263) 789,553,972 4.10%

Absolute Return 1,261,010,204 2,549,901 1,263,560,106 6.56%

Private Equity 1,574,527,294 200,622,518 (16,666) 1,775,133,145 9.22%Stock Distributions/Private Equity 2,736,682 2,736,682 0.01%

Total Managed Net Assets 18,439,072,343 901,394,282 (89,758,709) 19,250,707,888 100.00%


1

Long-Term

Target

Cash / Cash Equivalents / Accruals 86,035,511 0.63% 0.00%

Equities:Large Cap Active Pool 1,773,785,601 12.89%

Large Cap Index Pool 2,022,157,512 14.70%

Large Cap Enhanced Index Pool 414,245,967 3.01%

Small/Mid Cap Active Pool 441,902,753 3.21%

Small/Mid Cap Index Pool 57,323,871 0.42%

Small/Mid Cap Enhanced Index Pool 154,706,630 1.11%

Total US Equities 4,864,122,334 35.36% 31.00%

Non-US Developed Markets Index Pool 2,200,550 0.02%

Non-US Emerging Markets Index Pool 348,850,769 2.54%Non-US Developed Markets Active Pool 949,350,612 6.90%Non-US Emerging Markets Active Pool 578,657,770 4.21%

Total Non-US Equities 1,879,059,701 13.66% 15.00%

Total Equities 6,743,182,035 48.92% 46.00%

Core Bonds:Fixed Income Pool 1,963,878,896 14.28% 7.00%

Unconstrained Fixed Income Pool 440,462,008 3.20% 4.00%Credit & Structured Finance 747,939,778 5.44% 5.00%

Total Fixed Income 3,152,280,682 22.92% 16.00%

Real Estate 987,287,108 7.18% 10.00%

Real Assets 650,998,808 4.73% 10.00%

Private Equity:Private Equity 1,196,907,170 8.70% 10.00%

Absolute Return 939,178,896 6.83% 8.00%

Total Fund Net Assets 13,755,870,210 100.00% 100.00%

Market Value % of Net Assets

Land Grant Permanent FundApril 30, 2014

2

Long-TermTarget

Cash / Cash Equivalents / Accruals 15,965,529 0.35% 0.00%

Equities:Large Cap Active Pool 578,173,567 12.83%

Large Cap Index Pool 623,438,053 13.83%

Large Cap Enhanced Index Pool 131,364,594 2.91%



Small/Mid Cap Enhanced Index Pool 46,177,147 1.02%

Total US Equities 1,548,103,602 34.34% 31.00%

Non-US Developed Markets Index Pool 25,878,215 0.57%

Non-US Emerging Markets Index Pool 118,582,719 2.63%

Non-US Developed Markets Active Pool 316,450,205 7.02%

Non-US Emerging Markets Active Pool 192,885,922 4.28%

Total Non-US Equities 653,797,061 14.50% 15.00%

Total Equities 2,201,900,662 48.84% 46.00%

Core Bonds:Fixed Income Pool 703,791,931 15.61% 7.00%

Unconstrained Fixed Income Pool 50,568,384 1.12% 4.00%

Credit & Structured Finance 211,320,835 4.69% 5.00%

Total Fixed Income 965,681,150 21.42% 16.00%

Economically Targeted Investments 40,611,736 0.90% 0.00%

Real Estate 261,853,136 5.81% 10.00%

Real Assets 138,555,163 3.07% 10.00%

Private Equity:Private Equity 355,421,033 7.88%

Private Equity New Mexico 222,804,937 4.94%

Stock Distributions/Private Equity 2,736,682 0.06%

Total Private Equity 580,962,652 12.88% 10.00%

Absolute Return 302,307,189 6.71% 8.00%

Total Fund Net Assets 4,507,837,217 100.00% 100.00%


Severance Tax Permanent FundApril 30, 2014

3

Long-Term

Target

23,211,205 10.75%

Equities:Large Cap Index Pool 96,131,622 44.50% 46.00%

Small/Mid Cap Active Pool 1,328,074 0.61% 11.00%


Total US Equities 115,182,139 53.32% 57.00%

Non-US Developed Markets Pool 15,357,062 7.11% 7.00%

Non-US Emerging Markets Pool 3,348,006 1.55% 3.00%


Total Equities 133,887,207 61.98% 67.00%

Core Bonds 41,861,883 19.38% 23.00%

Absolute Return 17,057,050 7.90% 10.00%

Total Fund Net Assets (excl. cash) 192,806,140

Total Fund Net Assets 216,017,345 100.00% 100.00%

Tobacco Settlement Permanent FundApril 30, 2014

Cash / Cash Equivalents / Accruals


4

Long-Term

Target

1,019,492 2.11%

Equities:Large Cap Active Pool 102,825 0.21% 45.00%


Small/Mid Cap Active Pool 1,607,555 3.32% 10.00%

Total US Equities 25,353,327 52.39% 55.00%

Non-US Developed Markets Pool 3,970,012 8.20% 7.00%

Non-US Emerging Markets Pool 1,236,156 2.55% 3.00%


Total Equities 30,559,495 63.14% 65.00%

Core Bonds 11,792,916 24.37% 25.00%

Absolute Return 5,018,080 10.37% 10.00%

Total Fund Net Assets (excl. cash) 47,370,491

Total Fund Net Assets 48,389,983 100.00% 100.00%

Market Value

Cash / Cash Equivalents / Accruals

% of Net Assets

Water Permanent FundApril 30, 2014

5

Third Party Investors Asset AllocationApril 30, 2014

Cash / Cash Equivalents 0.00 0.00%

Equities:Large Cap Active Pool 97,531,888 13.50%



Total US Equities 335,101,242 46.37%

Non-US Developed Markets Pool 77,078,972 10.67%

Non-US Emerging Markets Pool 48,012,150 6.64%

Total Non-US Equities 125,091,122 17.31%

Total Equities 460,192,364 63.69%

Core Bonds 262,403,001 36.31% 36.31%

Total Third Party Ownership 722,595,365 100.00% 100.00%


6

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Ass

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Poo

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Lar

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Non

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l51

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Rea

l Est

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Poo

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243,

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-

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3,96

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Det

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Fin

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C

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17

Investment Holdings Report Notes to Report April 30, 2014

Page 8 reflects the summary of activity in the State Investment Council’s portfolio for the month ended April 30, 2014. Items to note:

• The monthly contribution from the State Land Office was $64,898,641; an increase of $1,877,933.16 from March.

• The Land Grant Permanent Fund contributions include the Federal Taylor Grazing proceeds of $145,524.

• The Tobacco Settlement Permanent Fund received $21,124,002 in Tobacco settlement

proceeds.

• The monthly beneficiary distributions of $44,596,384 and $14,206,054 from the permanent funds are reflected for Land Grant Permanent Fund (LGPF) and Severance Tax Permanent Fund (STPF), respectively.

• The bimonthly transfers to the Administration fund from the LGPF and STPF are reflected in the fees column as $6,400,000 and $2,200,000, respectively.

Contributions, distributions and rebalancing by Third Party Clients are reflected on pages 14 thru 17. The significant contribution was from New Mexico Retiree Health Care Authority for $8,000,000. The total on page 11 reflects only the investment pools included on page 8 as a sub-total. The total on page 13 is inclusive of the permanent funds and exclusive of the third party investors.

18

Tab 6 a. Governance Matters: Committee & Informational Reports: Discussion a. Governance Committee Report (Smart)

TAB 7

Closing Matters

a. Old or new business (Governor Martinez)

b. Next SIC meeting date: Monday, June30, 2:30pm; Tuesday, July 1, 9:00am, Santa Fe

TAB 8 a. Public Comment Period (Governor Martinez)

TAB 9

Vote to Enter Executive Session Pursuant to NMSA, 1978: (Governor Martinez)

a. 10-15-1(H)(2) Limited Personnel Matters: employee hiring and retention

b. 10-15-1(H)(7) Ongoing or pending litigation: PE secondary sale

TAB 11 Adjournment