Okay, I’m going to talk about local politics for a bit. Those of you reading this outside of the state of Georgia can skip this post.
Georgia is a fabulous place to call home, but trying to grow high-tech businesses in the Deep South has a few challenges that you just don’t encounter elsewhere in the country. One is the lack of local venture capital, which has been discussed ad nauseum elsewhere on the Web (and which I’m going to do again soon as part of my Raising Capital series on this blog).
What did Deep Throat say? “Follow the money.” Why don’t we have a lot of venture investors locally? Several reasons, but one is that we don’t have a lot of institutions locally who invest in venture funds. (See here for a discussion of how that works.)
Why don’t local institutions invest in venture capital funds? Well, for some of the very biggest, it’s illegal. Not “against their policy.” Not “doesn’t meet their current investment objectives.” Not “something they’ve tried and didn’t like.” Illegal. Requiring a change to state law.
Specifically, I’m talking about the state Teacher’s Retirement System and Employee’s Retirement Systems, which together have tens of billions of dollars of assets under management. All of it in stocks, bonds, and money-market funds. None of it is currently invested in what’s popularly known as “alternative assets”—a broad family that includes a wide variety of investments that are “alternatives” to traditional stocks, bonds, and money funds. Notably for our purposes, alt-assets include venture capital funds.
Forty-nine states in the Union permit state pension funds to be invested in these “alternative assets” to allow portfolio diversity and to provide fund managers with opportunities to generate increased returns for retirees. Georgia is the only one which forbids it.
When I was raising venture capital funds in my previous life, I’d travel to other states to meet with their pension fund managers. New York, Pennsylvania, Massachusetts, Minnesota, I forget where all I went. All of these states have long-standing commitments to investing in venture capital. After checking off all the diligence items about our fund—track record, partners, investment focus, deal flow, you name it—someone would inevitably ask “So, tell me how much has your local public sector committed to invest in your new fund?” I’d always reply “The absolute maximum allowed by law! Which is, unfortunately, zero.”
At that point, the meeting was over. Oh, we might sit and make polite conversation for another half hour, but the clear understanding was—if you can’t convince your local pension funds to invest in you, why should we even consider it?
Obviously, with 49 role models out there, we can learn what has worked well and what has led to problems. The amount invested in alt-assets should be a small fraction of the overall fund, probably a single-digit percentage of the total. There should be oversight requirements, and disclosure rules, and ethics rules, and conflict-of-interest rules. And since we’re new to this, we might not want Georgia to be the first institutional investor in a new fund—we should probably follow more experienced investors.
Unfortunately, there is a well-organized group of teachers, retired teachers, and others who oppose any expansion of the state’s pension investment profile. You can visit their home page here and see what you think of their arguments. Basically, they seem to be allergic to the word “risk.” Since these are the same teachers who routinely lead Georgia’s elementary and high school students to the Bottom Five ranking in national mathematics scores, you can make your own decisions about their statistical skills.
The local investment and technology communities have crafted a bill that provides all of the safeguards above—it’s called Senate Bill 80. It explicitly excludes the Teachers Retirement System from any reform, so nothing would change for the teachers. (Which makes you wonder why they’re making so many phone calls in opposition.) It would not require the state to invest a single dollar in any alternative asset fund, but would simply make it legal if the fund managers choose to do so. And it would cap any alt-asset investments to a total of 1% a year and 5% overall.
SB 80 passed the Georgia Senate in 2007, which means it needs to get past the Georgia House in this year’s session, or we have to start over from zero in 2009. It made it out of the House Retirement Committee last week on a 7-6 vote. Now it’s in the House Rules Committee, and it probably needs to pass that tomorrow or Tuesday if the bill is to make it to the floor of the House before the session ends on Friday.
Late last week, Shirley Franklin sent a staffer to the Capitol to request that, with caveats, city of Atlanta pension funds should be included in the language of SB 80. This request is huge, since it supports our contention that alt-asset investing will be good for all retirees, and it’s not just a tool to shovel money into the pockets of Republican fat cats. (Thanks, Shirley!)
So now it’s up to the House Rules Committee and to individual House representatives.
The membership of the House Rules Committee is online here. Do you know any of these people?
In any case, you have a local representative in the Georgia House. I’m embarrassed to admit that, since we moved since the last election, I had to go online to look up my own representative. It’s easy to do here. Then I called her and left a brief voicemail explaining that I was supporting SB 80 and hoped she’d take that into consideration when the bill came up for a vote. (I made it clear I was wearing my constituent hat, not my Georgia Tech hat.)
I was shocked when she called me back, and spent fifteen minutes talking about the bill. Maybe this idea of local representative government has something to be said for it!
- her office was getting flooded with messages against the bill,
- none of them were actually from her constituents,
- the campaign was pretty clearly orchestrated by the teachers’ union, and
- Shirley Franklin’s support was making her wonder what was going on.
The fact that I was the first of her actual constituents to contact her and that I was in favor of the bill carried a lot of weight with her.
The Republican leadership in both houses supports SB 80. If Shirley has actually put the Atlanta Democrat representatives in play, we can pass this bill next week!
You can read the full text of Senate Bill 80 here. Read the talking points that TAG has prepared about the bill here. Then, if you agree that Georgia should join the other 49 states in permitting investment flexibility, pick up the phone and call your House representative on Monday!
Constituent service is going to play a major role in whether this bill lives or dies in this year’s session… and, if my experience is any guide, most legislators are hearing from pressure groups opposed to SB 80, but
aren’t hearing from individual constituents who support it. Let’s change that. Tomorrow.