Sunday, February 13, 2000
Ky. funds might invest in ventures
BY PATRICK CROWLEY
The Cincinnati Enquirer
FRANKFORT — State officials are exploring investing a small portion of the teachers' and state employees' pension funds in the kind of start-up Internet technology companies that have shown unprecedented stock market gains.
Two percent of the state employees' and teachers' retirement fund would be about $430 million, according to Kris Kimel of the non-profit Kentucky Science and Technology Corp. in Lexington. That is money that could be invested in start-up technology companies in and outside of Kentucky and well as in the stocks of new Internet firms.
“Early stage venture capital is virtually non-existent” in Kentucky, Mr. Kimel said, “which has been a major impediment to companies' ability to grow and expand in Kentucky.”
Such investments would put Kentucky in line with other states, like Ohio, which already have such investments.
Those pondering the investment strategy for the retirement money — including Sen. Katie Stine, R-Fort Thomas — say they are moving especially slowly and prudently given that the proposal involves turning over millions of dollars of retirement money to basically untested firms founded on ideas with scant track records.
But there are also benefits to creating a pool of money for so-called “venture capital”:
• State employees would benefit from investing in Internet start-up companies while investing a very small amount of their overall retirement fund.
• Money would be generated for venture capital, which is lacking in Kentucky, according to investment and technology specialists. That could help the economy by creating new companies and jobs in the state.
“This is something we may not be ready to do just yet but we need to look at it,” said Mrs. Stine, who leads the Senate Economic Development, Labor and Tourism Committee and who is working to bring more technology companies and investment to Kentucky.
But Kentucky should begin putting 1 to 2 percent of the billions of dollars in public pension funds into venture capital, according to Mr. Kimel.
At least 30 states, including Ohio, are investing pension money in venture capital and Internet firms, Mr. Kimel said.
About $60 million of the Public Employees Retirement System of Ohio, a $57 billion pension fund, is invested in venture capital, said Neil Toth, the fund's chief investment officer.
Mr. Toth said overall he has been pleased with the return on the money invested in venture capital. One Internet company the fund invested in has returned about 25 percent since it has gone public, he said.
“There can be a dual advantage to investing in venture capital,” Mr. Toth said. “You can help companies in the state and you can get a good return for the people contributing to your pension fund.”
Mr. Toth said such investments should only be a very small part of the fund's overall holdings.
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