The big picture. That’s what the New Mexico State Investment Council (SIC) looks at when forging its investment strategy. Its chief, Robert “Vince” Smith, can justly say that this approach has paid off amply. Since he took over in 2010, the sovereign wealth fund has doubled in size to $35 billion.

Smith stresses “the importance of maintaining a top-down, medium-term [seven-to-10-year] macro view to guide asset-allocation asset-class construction.” He often finds himself talking with others about alpha, benchmarks, and portfolio efficiency vis-à-vis volatility. Less frequently, he hears about macro and asset allocation as return generators. “I think it should be the other way around,” he said.

The macro strategy “is an innovative approach among public funds,” he said. “Few funds internalize macro to the degree that we do, and it’s a process that is not easily replicated.” That “gives us something of an edge in maximizing our returns versus the investment risks we take to earn them.”

In the SIC’s , the fund looked for low economic growth with “downside surprises” more possible than upside surprises. The document describes stocks as the fund’s cornerstone and expresses willingness to pare down core fixed income, as low interest rates are expected to continue.

This entails some degree of reallocation, though not a major amount. “We increased our publicly traded equity exposure, coming out of the COVID-triggered equity market sell-off,” Smith said. “We’re now pulling that tactical allocation back, incrementally.” And all along he has expanded the use of alternative investments, or alts.

As of the fund’s October , 42.6% is in stocks, the largest SIC asset class, with that divided almost evenly between domestic and foreign equities. Core fixed income is 14.7%. Alternatives of various stripes make up almost half of the portfolio, with non-core—i.e., structured finance, bank loans, absolute return, etc.—at 10.2%. Private equity (PE) constitutes 10% and real estate 9%. This asset allocation is not too far off from where things stood in the pandemic-wracked 2020 .

Smith’s key observation on the economic cycle is that last year’s recession and the quick bear market that came with it were anomalous. “Economists are treating [those] as if [they were] normal, but the numbers don’t support” that take. A recession usually wipes out the excesses of an expansion, he said, yet this time “it was too short” to accomplish that task. Indeed, economic growth and the stock market came charging back. He is treating the current economy as if it is in the late cycle of its development. “So we haven’t changed the portfolio much.”

In college, Smith wrote a paper about how public pension systems were devastated by the 1970s stagflation. They had too few stocks then, and eventually moved into equities.

Smith has extensive experience in the world of public asset allocators. He worked as a senior portfolio manager at the Montana Board of Investments and as director of international equity at the Employee Retirement System of Texas (ERS). In 2006, he became CIO of the Kansas Public Employees Retirement System and four years later won his current post in New Mexico.

Amid all of his attention on macroeconomic matter, one lesson shines through: “You really have to diversify.” For him, alts are a great way to do so.

—Larry Light