For years, promoters of a new high-tech economy for Wisconsin pushed the State of Wisconsin Investment Board, or SWIB, to start investing some of its money in venture capital funds. The logic of these promoters was simple: Wisconsin needs to build a new economy with startup companies, which will lead to more employment and wealth for this state, but there is never enough venture capital to make the high-risk investments in these companies.
And who is better positioned to do this than SWIB, with its mother lode of some $84 billion in total holdings. It is the 30th-largest public or private pension fund in the world and the ninth-largest public pension fund in the country, covering nearly every state and local government employee in Wisconsin (the exception being employees of Milwaukee County and the city of Milwaukee, which both have their own pension funds). So why not have it invest in some of these venture capital funds?
And so, beginning in 2000, SWIB did. It allotted $185 million to invest in venture capital funds based in Wisconsin or in funds outside the state willing to open an office here. Going further, SWIB recently announced it would commit another $80 million to invest in high-performing venture capital funds on the east and west coasts. It was all good news as far as the several experts quoted in a Milwaukee Journal Sentinel article were concerned. A JS editorial joined in to cheerlead the idea.
Nowhere do we get any idea there might be any downside for Wisconsin. The truth is, venture capital is a high-risk investment. Most startups fail. Venture investors hope the occasional success will have such huge returns it will make up for all the failures.
“Yes, these types of investments can be riskier,” admits Vicki Hearing, spokesperson for SWIB. “It’s a very difficult asset class.”
So what has been the return on investment for SWIB’s venture capital investing? To date, Hearing says, the average annual return has been 1.7 percent – compared to 7.7 percent for SWIB’s core fund.
“We’ve had some excellent performers [from the venture fund],” she says, though apparently not enough to make up for the losers. This kind of investing is long-term and likely to vary wildly in its returns.
But so far, these investments are getting a way-below-average return for SWIB. And the relentless logic of a public pension fund, where employees have a guarantee of a minimum level of benefits, is this: Every lost dollar in its investments must inevitably be made good by the taxpayers. If SWIB’s investment managers do well (and historically they have done quite well) in the market, the taxpayer contribution can be adjusted downward.
That doesn’t necessarily mean the venture capital investing is a bad idea. Wisconsin needs to build a new economy. And the investment made to date by SWIB is a teeny, tiny portion (less than one-third of 1 percent) of its total holdings. The latest fund, by investing in what Hearing calls the “top tier” venture funds on the two coasts, will connect SWIB’s professionals to those working on those funds. “We can build a relationship with them, as they recognize we have a good knowledge of what’s happening in Wisconsin, we can say ‘There’s a company in Wisconsin – a startup – you might be interested in.’” Long-term, that could help build awareness on the coasts of a state economy they have pretty much ignored.
On balance, I think the benefits of SWIB’s entry into venture investing is worth trying. But citizens do need to know the downside of the program, and at some point, a study of it by the Legislative Audit Bureau should be undertaken.
Labor’s Candidate for County Exec
These are tough times for labor unions, particularly the union representing Milwaukee County employees. They took a beating from former County Executive Scott Walker during his seven-plus years in office. The pension scandal led to such public disgust over employee benefits that Walker could take the toughest stance toward employee compensation with seemingly no negative blowback from voters.
So who can labor turn to in the special election to replace Walker? Republican Jeff Stone is likely to continue the Walker approach, with perhaps a kinder, gentler style. Philanthropist Chris Abele has declared he won’t rule out privatization or consolidation of government services, which could mean a loss of county jobs. That’s not music to labor’s ears.
I’m guessing they will rule out Ieshuh Griffin, known for running unsuccessfully for the state legislature with the memorable identifier, “NOT the white man’s bitch.” Interim County Exec Lee Holloway is generally sympathetic to labor, but his likelihood of winning office seems slim, giving his much-publicized problems as a landlord.
That leaves just Jim Sullivan, the former Democratic state senator from Wauwatosa. When he ran for re-election in November, he had the support of at least a dozen different unions, including the big ones, AFSCME and WEAC. He also had the support of the International Union of Painters and Allied Trades District 7, which yesterday announced he was their choice for county exec.
He’s the obvious pro-labor choice. Unless unions decide he can’t win and hold their fire, rather than kill their chances with whichever budget-slasher, Stone or Abele, wins the race.
The Buzz:
-In response to my suggestion that conservative radio talker Charlie Sykes was likely to demonize Abele, Sykes e-mailed me to say he was, on the contrary, “intrigued” by him. And in his on-air interview with Abele last Friday, Sykes was quite cordial. So I was dead wrong on my prediction. So far.
-Republican Mark Neumann’s Sunday op-ed in the JS predicted that, like Russ Feingold, U.S. Sen. Herb Kohl could lose office if continues to support the federal health care plan that Republicans want to overturn. My guess is that, two years from now, public opinion will have embraced the law. But is Neumann’s column the first step on the road to him challenging Kohl in 2012?
-Democratic chair Mike Tate offered congratulations to state GOP leader Reince Priebus, who won the position of national Republican chair last week. “While we don’t agree politically, I am grateful for his generous spirit during the hard-fought campaign season behind us,” Tate declared.
–Scot Ross, head of the liberal One Wisconsin Now, offered a quite different take, castigating Priebus for allegedly leading several efforts since 2002 to suppress votes by minorities, college students and others. “Now that Reince Priebus will have the RNC’s treasury at his disposal,” Ross declared, “those across the county interested in fair and clean elections will be on high alert.”
-And with Packers-Bears playoff hype on overload, the Sports Nut fears for the welfare of a certain Wisconsin citizenry.
