Washington State Investment Board Will Provide Start-ups a Boost

The mission of the Washington State Investment Board is to maximize investment returns for more than 400,000 state workers.

John Cook
Seattle Post Intelligencer

That’s still the primary duty of the 22-year-old organization. But yesterday the board took an additional step when it unanimously approved a policy that calls for additional support for home-grown businesses.

By a vote of 8-0, the board passed a measure that would create a minimum level of investment in start-up companies that are operating here. The level of investment has not been set yet. But with $48 billion in assets and access to 86 venture capital and private equity firms, the investment board has deep pockets and plenty of influence. That money and influence could help bring some life to the state’s sluggish economy or it could lead to poor investment decisions. That was the debate in front of the board as it met for a vote yesterday.

Now that the policy has been adopted, the investment board must define how it works and what benefits it could bring to the state’s struggling technology, biotechnology and manufacturing sectors.

"We have work to do," admits the board’s executive director, Joe Dear. The new policy does not make the state investment board an economic development fund, nor does it give Washington investments a leg up on investments in other parts of the world, Dear said.

Even though the policy is in its nascent stages, venture capitalists and investment professionals from around the state applauded the move. And with good reason. VCs could have a lot to gain if the board starts allocating more money to start-ups and venture funds in its own backyard.

Kevin Barber, a managing partner at Northwest Venture Associates, a venture capital firm with operations in Seattle and Spokane, said the proposal makes total sense.

"As a resident of the state of Washington, I think it is great for all of us if the state is going to invest some of its assets here," Barber said. "It is really planting the seeds for economic growth."

Barber, whose brother is on the board of regents at Stanford University, said the state of California has done a great job of investing locally. CalPERS, the California state pension fund, invests about 16.6 percent of its assets in California. Washington’s investment board, on the other hand, invests 3.3 percent of its assets in the state.

"California, Texas, Michigan, Illinois, Virginia — all of the places that have built infrastructure are also investing in their states as well," said Barber. "I think there is a big opportunity for the state to contribute" in similar ways.

Robert Nelsen, a partner with Arch Venture Partners in Seattle, said his firm is currently talking to the pension funds of about a dozen different states as it attempts to raise its sixth fund. In his view, the investment board made the correct decision by stressing the importance of high-quality returns over geography.

"A lot of states are wrestling with this issue," said Nelsen. "The conclusion that the (investment board) has come to is really a balanced and optimal solution. They have been true to their fiduciary duty, which is to make money for their retirees, and if all things are equal they can do things that can benefit the state as well."

If a pension fund were to give local companies or venture capital funds an advantage, Nelsen said that could easily "pervert the process."

"If you push it too far into economic development, that is not the job of the investment board," he said. "I think the investment board found a nice balance."

Dan Rosen, managing partner of Frazier Technology Ventures, agrees.

"They passed exactly the right policy," he said.

But Glenn Gregory, who manages a Redmond hedge fund by the name of Obsidian Investment Advisors, wasn’t so sure. Gregory, who testified at the investment board meeting yesterday morning, said he wanted more specifics as to what the policy would actually do. He also said the state investment board needs to look beyond technology investments because "that is not going to lead us out of this recession."

"Now that we have the policy how are we going to implement it to make sure that money does get invested in the state?" Gregory asked. "The true success of a economic targeted investment policy is how much money gets invested in the state."

Dear said a staff person will be hired at the state board to look into those types of issues. For now, he said the policy is an important first step.