Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

F I S C A L I M P A C T R E P O R T

SPONSOR Cravens

ORIGINAL DATE

LAST UPDATED

2/12/07

2/14/07 HB

SHORT TITLE

Private Equity Funds For Tribal Investors

SB 662/aSIAC

ANALYST Francis

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates HB 215

SOURCES OF INFORMATION

LFC Files

Responses Received From

Board of Finance

State Investment Council (SIC)

Office of Indian Affairs (OIA)

SUMMARY

Synopsis of SIAC Amendment

The Senate Indian Affairs Committee amended Senate Bill 662 in two ways. First, by changing

the word “and" to “or" on page 3, line 19, corrects a technical issue. Second, the amendment

changes the definition of a tribal entity to limit eligibility to tribal entities with at least $5 million

in investment assets. This change means that only those entities with sufficient investment assets

to be able to manage the risk associated with private equity investing are eligible.

Synopsis of Original Bill

Senate Bill 662 allows the federally recognized Indian tribes, nations and pueblos to invest in

NM private equity funds that receive State Investment Council (SIC) investments. This would

allow tribes to invest in the New Mexico SIC Private Equity Program, a program that invests in

NM companies with the expectation of higher than normal returns but also as an economic

development tool for small companies in need of venture capital investment.

Senate Bill 662/aSIAC – Page

2

FISCAL IMPLICATIONS

The HBIC amendment does not change the fiscal analysis.

The inclusion of tribes as investors should have no impact on the fund or the investments. The

general partner, Sun Mountain, along with the SIC, directs the investments for the fund. The

tribes would get to share in any returns generated by the funds proportional to their investments.

The State Investment Officer (SIO) may invest in New Mexico private equity funds, funds that

have a New Mexico office and staff and that invest at least the level of SIC’s commitment in NM

companies. The mechanism the SIC currently uses for direct investments is The New Mexico

Co-Investment Partnership, a New Mexico private equity fund managed by Sun Mountain. Sun

Mountain is the fund’s general partner, while also acting as the SIC’s advisor for New Mexico

private equity fund investments. The SIC’s direct investments in New Mexico companies may

represent no more than 51% of the investment capital in a business and must be made in

conjunction with one or more qualified co-investors. SB662 expands the definition of qualified

co-investor to include tribes.

SIGNIFICANT ISSUES

The bill allows tribes to be investors in the fund but it will still be up to Sun Mountain, the

general partner of the fund, to accept investments other than those from the SIC from qualified

investors. The definition of accredited investor, according to the US Securities Act Of 1933, is:

(i) a bank as defined in section 3(a)(2) whether acting in its individual or fiduciary capacity;

an insurance company as defined in paragraph (13) of this subsection; an investment

company registered under the Investment Company Act of 1940 or a business development

company as defined in section 2(a)(48) of that Act; a Small Business Investment Company

licensed by the Small Business Administration; or an employee benefit plan, including an

individual retirement account, which is subject to the provisions of the Employee Retirement

Income Security Act of 1974,1 if the investment decision is made by a plan fiduciary, as

defined in section 3(21) of such Act, which is either a bank, insurance company, or registered

investment adviser; or

(ii) any person who, on the basis of such factors as financial sophistication, net worth,

knowledge, and experience in financial matters, or amount of assets under management

qualifies as an accredited investor under rules and regulations which the Commission shall

prescribe.

“Person" is further described as “an individual, a corporation, a partnership, an association, a

joint-stock company, a trust, any unincorporated organization, or a government or political

subdivision thereof." These definitions laid out in the federal law would likely excluded tribal

entities though not necessarily individual members of a tribe or a tribal corporation. SB662

would expand the scope of eligible investors in the NM private equity program to include tribes.

According to SIC, expanding eligibility will not change any of the financial requirements of an

investor but will allow investment from entities that are excluded because of the definition

passed down by the federal government. The SIAC amendment addresses this concern.

Office of Indian Affairs reports that “SB 662 could encourage Indian Tribes, Nations and

Senate Bill 662/aSIAC – Page

3

Pueblos to participate more actively with New Mexico private equity funds. SB 662 could also

provide an avenue to support economic development and an opportunity for Indian tribes,

nations and pueblos to gain higher return in their investments."

TECHNICAL ISSUES

Office of Indian Affairs:

As currently drafted, the amendment would allow “New Mexico private equity funds" to

accept investments from any federally recognized Tribe in the Nation, wherever located, and

still qualify for this investment opportunity. The intent of this amendment may be to

encourage cooperation between NM Tribes and New Mexico businesses. The standard

jargon used to limit activities and opportunities to NM Tribes is “federally recognized Indian

Tribes, Nations, and Pueblos located partially or wholly in the State of New Mexico."

ALTERNATIVES

SIC reports that the bill as proposed could create confusion and even litigation because of the

word “and." They recommend changing the “and" before “federally recognized" to “or":

The affected language defining “New Mexico private equity fund" reads: “…(e) accepts

investments only from accredited investors as that term is defined in section 2 of the federal

Securities Act of 1933, as amended (15 USCA Section 77 (b)), and rules and regulations

promulgated pursuant to that section, and federally recognized Indian tribes, nations and

pueblos."

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

HB 215 is a duplicate bill and was amended by House Business and Industry Committee in

exactly the same way as SIAC.

NF/mt