A portion of state pension funds should be placed in investment programs targeting local companies.
If I told you I had a way to create 10,000 new jobs in Minnesota, just by changing the investment strategy of one state agency, wouldn't your next words be, "Let's make it happen"?
What state wouldn't want to invest its own pension funds in high-return, job-creating, local businesses, while creating new jobs along the way? Minnesota, apparently.
Thirty-two other states have investment programs targeting local companies, our research shows. Meanwhile, in Minnesota, we sit idle. Those are exactly the kinds of investments that historically produce higher long-term returns than other assets. Right next door, the State of Wisconsin Investment Board (SWIB) in 2010 invested over $12.3 billion in companies with economic ties to Wisconsin. Minnesota's State Board of Investment (SBI), by contrast, invests only 7 percent of its $60 billion portfolio in private equity and 0.3 percent in venture capital, and very little of that in Minnesota firms.
I'm a Minneapolis-based venture capitalist, and I've joined with some colleagues to create Mojo Minnesota, a group working to fuel entrepreneurship and reignite Minnesota's culture of innovation, and a plan for creating 10,000 new jobs in Minnesota, just by using existing money to invest in our local companies. We spend every day trying to help our customers grow their businesses and create more jobs, and we're growing increasingly frustrated at the sliver of money that Minnesota's investment board is putting to work right here at home. Let me remind you that not one penny of taxes needs to be spent to make this job-creating phenomenon happen. All that's needed is a change of strategy by the SBI.
Currently, only a tiny portion of Minnesota's portfolio finds its way into the hands of those creating new, local jobs to get people back to work and build our economy. Minnesota is needlessly withholding the capital and the state investment needed to help maintain our reputation as a center for innovation and entrepreneurial ventures.
Meanwhile, other states are investing in new companies and having visible success in growing their high-tech sectors. Those states are drawing strength -- and jobs -- away from Minnesota, and SBI needs to make a change and become a leader in portfolio investment, or at least be competitive with other states.
It makes sense to invest in venture capital, because venture capital is just about the best way going to create companies and jobs. According to the National Venture Capital Association, investment in venture capital-backed companies equates to about 0.2 percent of annual U.S. gross domestic product (GDP). However, these companies employed 11 percent of the total U.S. private-sector workforce and generated revenue equal to 21 percent of U.S. GDP. Additionally, for every dollar of venture capital invested from 1970 to 2010, $6.27 of revenue was generated.
We could have the same sort of growth-generating, job-creating results right here in Minnesota if a larger portion of the investment board's assets were allocated to local venture capitalists focused on Minnesota companies. Pensioners who rely on the state of Minnesota have every reason to expect that the board is investing their money not only safely, but wisely. Not only should state workers welcome a chance for a small portion of their retirement funds to be used in this way, but they would certainly welcome the opportunity to create jobs right here in Minnesota.
The state investment board places funds with independent professional investment firms. And it should continue to do so. But it's time for the board to specifically select investment firms that are focused on investing in Minnesota. Even if the board targeted 0.25 percent (or $150 million) of the assets of state pensioners for investment in private Minnesota companies, such an investment would still leave the board far below the average venture capital allocation for portfolios of its size.
Such a move would not only provide our pensioners and public servants with the best possible return on their monies, it could also lead to the creation of an estimated 10,000 or more new jobs.
Minnesota is used to leading the pack in a number of key economic sectors. Now it's time for us to move to the top of the list for in-state investment. Thirty-third place isn't good enough.