Private firms pay off for Minnesota pension fund

  • Article by: JIM SPENCER , Star Tribune
  • Updated: September 17, 2012 - 8:28 PM

The state's return on those investments ranked third in U.S.

WASHINGTON - Minnesota's public pension manager is making big money investing in private companies, a new report showed Monday.

The Minnesota State Board of Investment earned a 10-year return of 13 percent on the private companies in which it invested, an analysis by the Private Equity Growth Capital Council (PEGCC) concluded.

Minnesota's private equity return ranked third in the country behind the Pennsylvania State Retirement System at 13.6 percent and the Teacher Retirement System of Texas at 13.1 percent.

Minnesota's private equity rate of return was more than twice the 5.8 percent that stocks traded on public exchanges yielded in the decade that ended June 30, investment board executive director Howard Bicker said.

The state does not pick individual private companies in which to place its money, Bicker said. Rather, it places money with investment companies that put together funds made up of groups of private equity firms.

PEGCC shows Minnesota with roughly $4.16 billion of its $50.48 billion investment pool tied up in private equity.

"Our percentage of investment is on the high side nationally," Bicker said. "It depends on risk tolerance. Private equity can be risky. You might have 15 companies within a pool.

"A couple might go belly up," but others will make significant profits, Bicker said.

PEGCC spokesman Noah Theran said the new report shows that "private equity is an asset class that delivers great benefits to public pensions."

Theran said Minnesota distinguished itself among the 151 large pension funds studied. The 10 best private equity returns for the 10-year period measured by PEGCC ranged from 13.6 percent to 10.6 percent.

The trade group says it will release a national average after it analyzes its data more completely.

When it comes to public pensions making money on private companies, timing can matter as much as careful consideration, Bicker cautioned. The Minnesota Investment Board has a history of private equity purchases dating to the 1980s.

"If you invested in private equity for the first time in 2007 [at the start of the Great Recession]," Bicker said, "you probably lost money."

Jim Spencer • 202-383-6123

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