But Recipients Support Program

The negative long-term performance of New Mexico’s investments in local start-ups remains little changed.  Two additional companies have failed and the relatively few jobs created come at a very high price.

Related:  NM Investment Performance Cause for Concern

Sun Mountain Capital, the advisor to the State Investment Council on its New Mexico private equity program, on May 17, 2010, released its only report in nearly a year. Its last report, dated June 30, 2009, showed a 12% negative return and only 1,107 jobs credited to a total commitment of $382,200,000.  Our own analysis of the NM private equity program, released shorty before the Sun Mountain report last year, showed similar job numbers.   We calculated those jobs had come at the price of $378,000 each.

A Failure by Any Measure:  The State Investment Council’s New Mexico Private Equity Program

Our calculation of jobs credited to the program came it at about 1/3 of what Sun Mountain had been claiming up until then.

Sun Mountain’s latest report shows a negative 12.3% return.  It again attempts to justify the program in terms of economic impact instead of  investment performance as measured in traditional returns to the taxpayers.  It reports that 56 New Mexico companies have received funding, up one from its 2009 tally.  Thirty-nine of those companies are counted as “active,” 11 have been “liquidated,” which usually means failed, and 5 have “exited,” meaning they have been left the venture cap stage through acquisition by another company.

As our previous reporting shows, “active” companies includes firms with no or only one or two employees, as well as firms which left New Mexico shortly after receiving millions of dollars in state investments.,

Sun Mountain reported that in the fourth quarter of 2009 it conducted a survey of the firms which had received private equity investments through the SIC.  It found that 98.2% of the firms receiving state money “gave very positive feedback on the Program.”  Almost all, 94.6%, of the companies would either have moved from New Mexico or been located elsewhere if not for Program funding.  The program was also credited with 86.5% of the jobs created.  Sun Mountain reported that the average salary of jobs created was $62,060.

A freeze on new private equity investments in New Mexico, in place since the fourth quarter of 2008, may be lifted in the third quarter of this year.

The largest investment in the New Mexico private equity portfolio, Eclipse Aviation, filed Chapter 7 bankruptcy in March 2009.  Another large investment, Advent Solar, which had been the second largest job-creator, laid off all its employees by the time it was sold to Applied Materials in November 2009.  The sale, according to Lux Research analyst Ted Sullivan, as reported by earth2tech.com, “was done very cheaply.  Investors did not get their money back — pennies on the dollar is a very safe assumption.”

Sun Mountain does not report a market value for the SIC’s New Mexico private equity investments.  These companies are not publicly traded, so they have no value established by a broad market of buyers and sellers.  Rather, a “portfolio carrying value” is estimated through an appraisal method of what the companies might be worth were they and their assets sold.  It is a best guess measure of value that cannot be verified until a company “exits” the program.  Its weakness as a valid measurement was demonstrated when Eclipse Aviation filed for bankruptcy.  For years, the estimate of Eclipse’s value pulled the overall portfolio up.  The current portfolio carrying value was reported by Sun Mountain at $195.5 million, unchanged from a year ago, even though later in the report Sun Mountain stated that “program returns are down, reflecting macro economic conditions.”

Related stories:  High Risk, No Reward:  The SIC’s Aggressive Play on Speculative Real Estate