Bluegrass Pensions Resist VC Push

May 27, 2003 ( - Louisville Metro Mayor Jerry Abramson may think venture capital investment is a good business move, but it doesn't look as though it will be an easy sell to the Bluegrass State's two largest retirement systems.

Earlier this month Abramson said he planned to approach the Kentucky Teachers’ Retirement System (KTRS) and the Kentucky Retirement Systems (KRS) and ask them to allocate 2-3% of their combined $24 billion in holdings to two local venture capital firms, Chrysalis Ventures LLC and Prosperitas Investment Partners LP (see  Louisville Mayor Wants State Pension Funds in VC Firms ).

However, according to a Business First of Louisville report, Stuart Reagan, chief investment officer for the Kentucky Teachers’ Retirement System, said he doesn’t see venture capital as a good investment right now, and notes that the fund probably will never invest 2-3% in the asset class.   “It’s a high-risk asset class that has done miserably over the last couple of years,” said Reagan, according to the report.

Fiduciary Concerns

In a  statement , the KRS Board of Trustees said it “…firmly opposes any legislative mandate, and will vigorously defend against any attempt to circumvent the Board’s sovereignty in performing its fiduciary duties, including its obligation to act for the exclusive benefit of its members and beneficiaries.”   The KRS Trustees issued the statement in response to a reported statement from State Treasurer Jonathan Miller about the Abramson proposal, which noted, “If the boards reject the idea, the next step would be to seek support in the Kentucky General Assembly for legislation requiring the boards to make such investments.”   Miller serves on the board of directors of the Kentucky Retired Teachers’ System.

Not that the KRS Board is opposed to alternative investments.   The system notes that it has developed a formal set of application procedures and a review process to evaluate alternative investments, an area the system began considering July 1, 2001.   Nor is it apparently opposed in principle to investments that benefit the state, noting that it has “invested over $400 million in securities of companies that directly or indirectly provide a positive contribution to the economy of the Commonwealth of Kentucky.”

The Business First report cites comments from William P. Hanes, executive director of the KRS in Frankfort, who claims to have received more than 110 e-mail messages from people who were concerned about the proposal, specifically the mention of a legislative mandate.   Hanes reportedly approached the board to formulate the position statement, which was approved in its May 15 meeting.   “We have a real concern, not only among the board but among the staff, with mandating any particular investment,” Hanes said, according to the Business First report. “The board serves as fiduciaries of the fund. You can’t create a fiduciary position and superimpose certain conditions on top of that.”

Pitch Block?

The report goes on to note that Abramson still plans to make his case to the pension boards.   However, while Reagan said Abramson is welcome to pitch the idea, he doesn’t see it going far.   “The mayor has as much to do with asset allocation here as we do with the organization of the police department in Louisville,” Reagan said, according to Business First.

The KRS is responsible for the investment of funds and administration of benefits for over 200,000 state and local government employees in the Commonwealth of Kentucky. These employees include state employees, state police officers, city and county employees, as well as nonteaching staff of local school boards and regional universities.