Louisville Mayor Wants State Pension Funds in VC Firms

May 5, 2003 (PLANSPONSOR.com) - Louisville, Kentucky's mayor is talking about putting money down on a horse race of a different kind: state pension fund investments in Louisville venture capital firms.

Mayor Jerry Abramson’s plan calls for the pension dollars to be invested through two Louisville venture capital firms, Chrysalis Ventures LLC and Prosperitas Investment Partners LP.   If approved, the proposal could generate between $480 million and $720 million, which would be used to help companies start and grow, according to a report by bizjournals.com.

Abramson said he plans to ask for 2% to 3% of the $24 billion controlled by two retirement systems.   The two systems to receive the pitch are the Kentucky Retired Teachers’ System and Kentucky Retirement Systems, which each control about $12 billion, according to the policy director for the Kentucky State Treasurer’s Office.

The mayor said that after studying state law, a conclusion was reached that pension boards can invest in venture capital funds.   “We believe that the statute on the books gives flexibility to the (retirement funds) to set aside a percentage of the money for venture-capital investment,” Abramson said.   Detail of the venture capital idea, along with other entrepreneurship initiatives, will be presented in a speech at the monthly meeting of The Venture Club of Louisville on Wednesday, May 7.

Officials Talked

Abramson said the idea was discussed with Kentucky State Treasurer Jonathan Miller.   Miller said he supports the idea, and he agrees that state retirement-fund boards have the authority to invest money in venture capital.   “They make a very compelling case, particularly during a time when the stock market is so shaky.”

Miller serves on the board of directors of the Kentucky Retired Teachers’ System, which, as part of its duties, oversees the management of the pension fund.   As part of the pitch, the mayor’s team explained that the risk of investing in businesses through venture capital firms historically compares favorably with most stock indexes. Additionally, the funds were presented as having even lower risk because the amount of investment sought is a small percentage of the funds’ holdings and because the venture capital firms spread among several businesses rather than directing one investment to one recipient.

Miller said the first step will be for Abramson administration officials to approach the boards individually. 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.