State equity investments program might draw private capital

As State Treasurer Kate Marshall and her staff move as quickly as they can to flesh out an initiative that will invest state funds in private companies in the state, private investment figures say the plan may attract significant chunks of private capital into Nevada as well.

A proposal approved by the Legislature this year allows Marshall's office to invest up to $50 million from the state's Permanent School Fund into private-equity investments everything from venture capital for startups in Nevada to buyouts of existing businesses.

Economic development officials have said the plan provides a significant stream of capital in a state that has little organized venture capital of its own.

And, they've said, the fund helps keep Nevada competitive with neighboring states that already have similar financial vehicles in place.

Interest is strong enough that Marshall's office already is fielding calls from businesses including at least one out-of-state manufacturer who might move to Nevada if the state can help finance its expansion.

Seemingly simple on its face, the private-equity investment plan is complicated in its details.

A newly appointed Nevada Capital Investment Corp. board met for the first time last month.

Among the board's biggest jobs: Selecting a fund manager who will oversee the day-to-day investments in Nevada companies.

And that, Marshall says last week, requires a lot of thought by state officials.

How much importance should the Nevada Capital Investment Corp. place on experience in Nevada for the management firm? How about experience with management of public funds? How the manager's track record with similar initiatives elsewhere?

Marshall says her staff expects to propose a selection process for a fund manager to the Nevada Capital Investment Corp. by January or February.

Once the selection process is complete and the investment manager gets to work, the state might be investing permanent school funds in private equity by the autumn of 2012.

A year may feel like an eternity to businesses looking for capital, but Chris Howard a member of the Nevada Capital Investment Corp. and a principal in Northstar Investors of Reno says the process simply takes time.

"Kate Marshall is doing a good job moving this along quickly for government," Howard says. "It's just not that easy."

Howard is joined on the board by a second northern Nevadan, Jim DeVolld, former president and chief executive officer of First Independent Bank.

Private sector investment fund managers say the biggest importance of the state private equity fund may result from its ability to attract venture funds and private-equity finance houses into the state.

"It can have a huge impact," says Dusty Wunderlich, managing partner of Optimum Strategy Group, an investment banking advisory firm headquartered at Zephyr Cove.

It's not unrealistic to think, Wunderlich says, that $50 million in state funds might be matched by another $50 million in private investment into the state.

Some private investors, Howard says, may team up directly with the fund-management firm selected by the state to invest in Nevada companies.

"They need a lead," he says. "They need someone to fuel the fire."

Wunderlich, meanwhile, notes that venture capitalists have a marked aversion to traveling too far from home as investments typically are made within 60 miles or so of a venture capitalist's office. But if more investment opportunities are available in the state, venture firms are more likely to make the trip.

But, he notes, that this assumes that good firms worthy of investment can be found in Nevada or that that good companies can be convinced to relocate here.

Marshall says the fund-manager will be under no pressure to invest funds quickly, and the state probably will be looking at a long horizon say, 10 years before it looks to cash out its private equity investments.

For her sake, Marshall says the economic development benefits that might arise are secondary to her desire to kick up the rate of return on the $300 million Nevada Permanent School Fund.

(The fund, which works sort of like an endowment for K-12 education in Nevada, originally was funded by sale of land grants from the federal government. Now it also money from other sources such as court fines or private donations.)

Marshall says the school fund has been earning about 1 percent on its very conservative portfolio, but some successful investments in private equity would increase those earnings.

By keeping the fund's focus on potential earnings, she says the fund manager also will avoid pressures to use the money to bail out failing businesses.