By Ryan Ekvall | Wisconsin Reporter
MADISON – Nearly two years after demanding public-sector unions pick up their share of taxpayer-funded pensions, Gov. Scott Walker is asking government workers to bet part of their retirements on a plan to subsidize new businesses in Wisconsin.
The venture capital plan calls for moving hundreds of millions of dollars into an embattled quasi-public economic development agency that lost track of a $56 million loan portfolio, among other mismanagement problems.
Documents obtained by Wisconsin Reporter show that Reed Hall, CEO of Walker’s Wisconsin Economic Development Corporation, recommended that the State of Wisconsin Investment Board loan $200 million to WEDC.
Walker serves as chairman of the WEDC board of directors.
Hall said WEDC would use SWIB’s cash to promote business growth through taxpayer-subsidized government investments in Wisconsin companies.
In a letter to SWIB, Hall explained that he was turning to the pension fund because his start-up program would likely find it harder to tap private investors “due to a lack of demonstrable track records.”
“Given that some of these funds may be managed by first-time fund managers, the issue arises of where to turn for the outside investment,” Hall wrote. “We recommend that SWIB consider an allocation … of $200M.”
Hall noted that $200 million “represents less than 0.3 percent of the SWIB’s total assets.” SWIB manages the $76 billion Wisconsin Retirement System public employee pension trust fund, as well as several smaller trusts.
SWIB politely rejected WEDC’s offer.
“The challenge for SWIB is to make sure that any new programs it engages in, such as economic development, does not have any adverse effect on its management of WRS assets,” the agency responded.
Any “investment opportunity” must meet SWIB’s “established due diligence and investment requirements.”
“However, use of WRS trust fund monies to fund economic development initiatives does not meet our fiduciary duty,” the agency added.
“We have to invest based on what’s best for trust fund,” said Vicki Hearing, communications director at SWIB. “We make the best investment choices based on the risk that is allowable for the trust fund. If a fund is not about earning an investment return, then it would not meet our fiduciary duty. Earnings will not be their primary goal.”
The brush-off might have something to do with the fact that WEDC has already developed a reputation for inattention to detail. The Milwaukee Journal Sentinel in October revealed the quasi-public economic development organization lost track of a $56 million loan portfolio , among other accountability concerns.
Another document shows WEDC has also approached private investors for their participation, and acknowledged that politics will determine the program’s future.
“It is also anticipated that the Program will be funded over a term of approximately six years in annual tranches to be determined,” WEDC’s David Volz wrote in a request for information to venture capital fund managers in December. “There is, however, no assurance that future Legislatures will continue authorization past the initial biannual budget period (2013-2014.)”
“Part of what we’re doing is trying to get some inquiries in advance of what the Legislature might do,” said WEDC spokesman Tom Thieding. “What Tim (Cooley, director of capital development at WEDC) has been doing is getting input from early-stage developers to fund managers to angel investors. This could be a pretty significant investment the state makes, and we really want to make sure we’ve done our homework and get it right out of the box.”
Despite its aversion to the WEDC proposal, SWIB has invested pension funds locally. The organization’s “Investing in Wisconsin 2012” report notes:
“Over the past 12 years, SWIB has allocated a total of $305 million to its Wisconsin Private Equity Portfolio. This represents 20 percent of SWIB’s total venture capital commitments. From July 2012 until June 2017, SWIB projects new Wisconsin private equity investments will range from $25 million to $50 million.”
Hearing, the SWIB spokesperson, said $25 to $50 million is just a guideline and that SWIB could invest more in venture capital at any time. The investment board just hasn’t “seen the good investment opportunities,” Hearing said.
In 2012, SWIB committed $25 million to a new venture capital fund, Venture Investors Early Stage V fund.
SWIB’s portfolio in Wisconsin as of June 2012 shows $126 million that SWIB has committed to venture capital funds that have not been drawn upon yet.
According to the 2012 report, SWIB has more than $16 billion of assets in companies based in Wisconsin or companies based elsewhere that employ more than 20 people in Wisconsin. Most of those assets are held in public equities.
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