What a mess. In 2009, New Mexico’s State Investment Council discovered that more than a dozen politically connected “entities and individuals” had failed their
fiduciary responsibilities or aided and abetted that breach, revealing
a labyrinth of corruption at the fund, which then had assets of $11.46
billion, largely in permanent funds. Much of the problem was rooted
in placement fees paid by external managers to a few politically-con-nected advisors.
Rebuilding started in 2010 with sweeping legislative changes
that “removed critical investment decisions from the hands of
one or two individuals, placing them more appropriately with the
Council as a whole,” according to the council’s published reports.
It has taken several years of reforms and restructuring for the
council to realign legacy investments and integrate a new, trans-
parent, accountable culture that pivots on continual due diligence,
ongoing audits, and a ‘trust and verify’ philosophy. The key, said
Steven Moise, New Mexico’s state investment officer, is to “insti-
tutionalize best practices. If you don’t have the right systems in
place, chances increase that things won’t go well in the future.”
New Mexico now outsources all of its investment management to
a spectrum of vetted firms and balances that with a staff compli-
ance officer, regular internal audits, and a layered investment deci-
sion-making process with checks and balances at each step.
The public and stakeholders demand more transparency than
ever. No aspect of management, from diversity to executive pay,
escapes notice. Controversy can spark instantly about the decisions
Due diligence is not just corporate wallpaper: it’s your insurance
policy when you have to defend your outsourcing picks.
Reported by Joanne Cleaver / Art by Armando Veve
ON THE JOB