Gov. Nathan Deal open to state pension dollars being invested in venture capital funds

By Maria Saporta
Friday, Sept. 16, 2011

In an effort to make Georgia more competitive, Gov. Nathan Deal is open to allowing a portion of the state’s pension funds to be invested in venture capital.

Georgia is the only state in the nation that forbids its employee pension funds to be invested in alternative investments — a sore point among technology leaders hoping to make Georgia a vibrant center for research and new ventures.

For much of the past decade, technology leaders have been trying to get traction at the state Capitol to change Georgia’s restrictive investment policies — so far to no avail.

But Deal could emerge as a champion to change the state pension funds’ investment portfolio.

At the board meeting of the Georgia Research Alliance on Sept. 8, Deal asked the influential business and academic leaders for help in making the state a more important center for venture capital, and he mentioned that allowing the state’s pension and retirement funds to be invested in new ventures could help attract new capital.

“I’m open to considering it,” Deal said after the meeting. “I’m willing to look at it.”

During the meeting, Deal acknowledged that there would be political challenges in changing the state’s policy, saying it was “a tough sell.”

But the governor also believes that if his administration can provide documentation of how other states with more flexible investment strategies have outpaced Georgia, then legislators may be more willing to support changing a change.

“I want us to look at the returns that have been achieved by states that allow those investments,” Deal said. “We need to know the facts. It has to be an evidence-based decision.”

Technology and economic development leaders in Georgia welcomed the governor’s willingness to revisit the state’s investment policy.

“We are very, very encouraged that Gov. Deal is open to serious discussion on the topic,” said Mike Cassidy, president of the Georgia Research Alliance. “We think a modest allocation of pension funds for venture capital is an imperative to the competitiveness of our state. To be the one state out of 50 that doesn’t authorize that use is a real challenge.”

Over the summer, the governor’s Competitiveness Initiative — done as a partnership between the Georgia Department of Economic Development and the Georgia Chamber of Commerce — has been holding meetings around the state to find ways to attract more economic investment in Georgia.

Chris Cummiskey, commissioner of the Georgia Department of Economic Development, said the issue of the inability to invest the state’s pension and retirement funds into venture capital has surfaced at every meeting.
Although the steering committee for the Competitiveness Initiative has yet to present its recommendations, Cummiskey said he was sure this topic was “going to be at the top of the list” for discussion.

“Access to capital is an issue that will absolutely be at or near the top,” Cummiskey said. “The governor is absolutely open to using parts of our pension funds. We have 49 other states to look at and see what model works best for Georgia. The governor wants to see the returns.”

Cummiskey said changing the policy could be “beneficial not only to our venture companies but it can help the performance of our pension portfolio.”

According to Chris Clark, president and CEO of the Georgia Chamber, “our retirement fund in Georgia has underperformed compared to the national average.” The Competitiveness report will “identify ways to move the ball forward” to attract more venture funding to the state. “Undoubtedly we are at a competitive disadvantage because we can’t use our pension dollars,” he said.

Clark also applauded the governor for showing leadership on this issue, adding that the Georgia Chamber has supported changing the state’s investment policy for years.

Tino Mantella, president and CEO of the Technology Association of Georgia, said there has been a “groundswell of interest and support” to help Georgia find more funding for companies with great potential.

Studies have shown that more than 90 percent of the funds invested in new ventures in Georgia comes from outside the state.

As a result, “40 percent of the venture-backed companies leave the state within five years,” Mantella said.

Deal is aware of the problem. At the Georgia Research Alliance meeting, the governor said it was a “great travesty” that the state’s researchers come up with the ideas and then they are “stolen away simply because we don’t have the startup capital.” Just when the new ventures “reach a breakthrough, they get siphoned off.”

Because of a campaign promise, Deal said he would not propose changing the policy for the teachers’ retirement funds.

The focus would be on the pensions of other state employees. In the 2010 legislative session, the Georgia Firefighters Pension Fund was able to get a bill passed allowing it to invest up to 5 percent of its investments into alternative funds.

Even if the policy is changed, Deal said only a small percentage of the pension dollars would be able to be invested in new ventures. He will look at the policies in other states to see what has been most successful.

“We didn’t go about this for small fixes,” Cummiskey said of the governor’s emphasis in making the state more competitive. “Because of the importance of job creation, this is our time to be bold and do what we need to do to be competitive. Nothing is off the table.”

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