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Washington State Investment board may put more cash in state startups

Washington’s multibillion-dollar public-investment fund, after prodding from Gov. Gary Locke, is considering changing its investment policy to funnel more money into the state’s startup technology and biotech companies.

By Luke Timmerman
Seattle Times business reporter

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Why can’t Montana implement a similar program???- Russ

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The Washington State Investment Board, which manages $48 billion in investments mainly for public-employee retirement accounts, has crafted a policy that could allow it to favor home-state companies, so long as it doesn’t sacrifice its duty to maximize investment returns.

The policy, to be voted on next Thursday, doesn’t set aside a fixed percentage or dollar amount for home-state companies. Instead, the board would hire someone to help locate appropriate investments.

"If all things are equal between two competing investments in terms of risk and return, then (the board) could consider secondary benefits, such as economic development and job creation," said Joe Dear, executive director of the investment board, a former Locke chief of staff.

Locke wrote to the board in December to consider such a move. Bills have been introduced in the Legislature to funnel as much as $12 million into biotech startups.

Tim Welch, a spokesman for the Washington Federation of State Employees, called it "a step in the right direction." He said the union was concerned about the board investing too heavily in startups, but said the policy doesn’t appear to put retirement funds in jeopardy.

Some venture capitalists say "economically targeted" investments often perform poorly. Others say the policy could work because it ranks investment returns ahead of secondary benefits like economic development.

"It’s a reasoned policy," said Robert Nelsen, managing director of Arch Venture Partners in Seattle. "If I have potential investment deals in Boston and Washington, I’d rather do it in Washington, but only as long as the investment return is still the prime concern."

The investment board says its portfolio already tilts toward the state — with investments in 187 Washington companies. About 3.3 percent of its assets are in Washington, while the state accounts for 2.2 percent of the U.S. economy.

Some home-state investments have succeeded, including Microsoft and Costco Wholesale. Others have floundered, like edge2net and iCopyright.com.

The board puts 32 percent of its assets in U.S. stocks, 14 percent in non-U.S. stocks,, 29 percent in fixed-income investments, 15.3 percent in private equity investments and 10 percent in real estate. Any shift toward Washington companies could be done within that asset allocation, Dear told legislators in January.

The fund is not under pressure to switch, but has felt heat as its assets have dwindled from $59 billion in 2000 to $48 billion. Dear says that decline is in line with similar-sized public pension funds, but it has strained the state’s retirement fund and the workers’ compensation fund, causing premiums to rise for state businesses.

Washington’s move comes as 28 other states have created seed funds for technology or biotech research, some of them substantial, according to the Biotechnology Industry Association.

Wisconsin has devoted $50 million of state retirement fund to biotech venture investments. Michigan is using $1 billion of its share of the national tobacco settlement over 20 years to support life-sciences research, with 10 percent specifically for turning research into businesses. Calpers, the giant pension fund for California public employees, with assets of $133 billion, has earmarked $500 million for state biotech firms.

Ruth Scott, president of the Washington Biotechnology and Biomedical Association, said money from the state’s fund would impress other investors, and make local companies more attractive.

"One of the first questions companies get when they are raising money is, ‘Who’s investing in you locally?’ " Scott said.

Don Elmer, managing general partner with Pacific Horizon Ventures in Seattle, said investments in the University of Washington took years to pay off, but have helped propel Seattle into an emerging biotech hub.

He added that Washington’s most successful biotech company to date, Immunex, took nearly 20 years to transform into a highly profitable company, with 1,600 employees in the state at its peak.

"Today is a day to start planting trees that will bear fruit for many years," Elmer said. "Once biotech companies take root, they tend to stay in one place. It takes a patient view, but it will pay immense dividends in the long run."

Luke Timmerman: 206-515-5644 or [email protected]

Copyright © 2002 The Seattle Times Company

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