Wednesday, February 16, 2000
Kentucky venture investments possible
BY PATRICK CROWLEY
The Cincinnati Enquirer
FRANKFORT — State officials are considering whether to invest up to 2 percent of 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 in potential ven ture capital, said Kris Kimel of the nonprofit Kentucky Science and Technology Corp. in Lexington.
That is money that could be invested in start-up technology companies in and outside of Kentucky as well as in stocks of new Internet firms.
“Early-stage venture capital is virtually nonexistent” 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, such as Ohio, which already have such investments.
A recent survey by the accounting firm Pricewater houseCoopers said that in the last three months of 1999, just $5.2 million in venture capital was invested in Kentucky, in just three deals. That compares with $53.3 million in 15 deals in Ohio, which itself pales compared with $5.7 billion invested in 358 deals in the Silicon Valley of California.
At least 30 states, including Ohio, are investing pension money in venture capital and Internet firms, Mr. Kimel said.
In Ohio, 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 that, overall, he has been pleased with the return on the venture capital investments. One Internet company the fund invested in has returned about 25 percent since it has gone public, he said.
Those pondering the investment strategy for Kentucky's employee retirement funds — including Sen. Katie Stine, R-Fort Thomas — say they are aware of the risks involved in the volatile economics of fledgling computer companies with scant track records.
But the potential is as great for a boom as it is a bust, they say, and a small, slow investment approach is prudent.
There are also side benefits to creating a pool of money for venture capital use, they said:
• State employees could partake of the greater-than-normal gains of Internet start-ups while risking a tiny portion of their retirement fund.
• Money generated for venture capital, which is lacking in Kentucky, 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. “It does seem to be a common practice in other states.”
Kentucky should begin by putting 1 percent to 2 percent of the billions of dollars in public pension funds into venture capital, according to Mr. Kimel.
“Certainly we recognize it's somewhat of a controversial issue because you're dealing with pension funds,” Mr. Kimmel said last month in testimony before Mrs. Stine's committee. “We believe the evidence demonstrates that ... it can be done prudently. It can, in fact, accrue a very nice return and diversification of the portfolio for the pensions.”
Mrs. Stine said she has heard that a lawmaker may soon sponsor a bill in the current General Assembly session that would create a venture capital pool using money from state pension funds.
A law is not necessarily needed for the pension funds to invest in such companies, said Stuart Reagan, chief investment officer for the $12 billion, 80,000-member Teachers' Retirement System pension fund.
But a law passed by the legislature could dedicate a certain percentage of the funds to a venture capital pool, Mrs. Stine said.
“We are under no legal prohibition from investing in venture capital,” said Mr. Reagan, a Northern Kentucky native who now lives in Frankfort. “And we're not adverse to investing in venture capital,” he said. “We want to be very careful how we invest, and we have looked at these types of investments from time to time. We just haven't found the right vehicle or investment.”
Mr. Reagan said because he is overseeing the retirement money for thousands of people, he gravitates toward “more conservative investments.”
The funds' holdings so far include blue-chip stocks of large corporations such as IBM and Procter & Gamble; government-backed bonds, notes and bills; high-grade corporate bonds; mortgages backed by the federal government; and real estate, including buildings the fund owns and leases back to large retailers such as Kroger, Wal-Mart and Lowe's Home Improvement.
Any state or fund would be making a mistake investing only in companies or stocks in that state, said Ted Robinson, a partner in the River Cities Capital Funds, a $140 million venture capital fund in downtown Cincinnati.
“Pension funds investing in venture capital does encourage new companies starting in a state,” Mr. Robinson said. “But you need to look at the strength of an investment and not where it is located.”
Stadium bill up $14.3M
County bears main blame in stadium fiasco
Stadium a big political problem for Bedinghaus
Who's who on the stadium team
Child alerts take to airwaves
Officer in cruiser shootout retires
Schools get large part of tobacco settlement
City defends support for development group
Collegians find politics and fun can be good mix
Auto Expo opens today at convention center
Drug officers fan out at banks
Hotel-tax hike gains backer
Queen City's moments to shine reflected in book
'Oprah' slips in Tristate ratings
Oscar nominees hold surprises
Complete list of Oscar nominations
GET TO IT
Appeals court OKs peculiar use of jury
Attempted fraud lands 3rd perpetrator in prison
Audience appreciates Cowboy Junkies' pace
Butler chips in $3M to revamp mall
Cathedrals, universities called forces in cities
Clermont County goes all out to mark 200th
Computer technician indicted on porn charges
F. Lee Bailey says Sheppard fought 2
First-graders learn to sign
Insurer backs off cancer payments
Kentucky venture investments possible
Lincoln Heights considers new truck-ban ordinance
Man pleads guilty to child porn
Mason fire chief hurt at rescue scene
Offers made on old toys
Politicking gets cop suspended
School bus drivers defy union
Schools to aid health outreach
Slain man was naked and bound
Track condition stops the train
TRISTATE DIGEST
Victim's family helps killer avoid death
Warren officials question purchases
Woodlawn manager quits
