Maryland and Pension Fund Would Be Well Served by Investing Modest Percent of Fund Into Venture Capital

March 1989 / Abell Reports / Community Development

Benefits: high return, reduction of risk through diversification, enrichment of economic development. Delegates have opportunity with “Resolution No. 25.”

The Maryland State Retirement and Pension System con­tains over $8.5 billion in assets, invested largely in publicly traded stocks, bonds and real estate. Over the past nine years, the return on this investment has averaged 13.6 percent — better than many other public and private pension funds. But a portion of the fund can be made to yield not only a higher return but also provide stimulation and acceleration of the state’s economy.

With this broader and more ambitious concept in mind, Delegates Rosapepe, Rawlings, Rosenberg, Boergers and LaMotte have introduced House Joint Resolution No. 25. The resolution seeks to “encourage” the Maryland Retirement Systems to invest in seed capital investment funds.  Such a resolve is consistent with the programming of a growing number of public pension funds, which are investing a portion of their resources in venture capital partnerships. The Maryland system currently has made no investment in venture capital. Almost $3 billion has been invested by over 200 pension funds in venture capital (Pension and Investment Age, January 25, 1988, p.83). Accord­ing to Venture Economics, the leading authority in the field, the yield from venture partnerships over the last decade has averaged 20 to 25 percent. It is the argument of this paper that Maryland should follow their examples, and invest a small per­centage (1 to 5) of its pension funds in venture capital, focusing on investments in Maryland with preference given to “seed” funds — that is, those that invest in the earliest stage of a business. The benefits to the Maryland taxpayer could be generous, indeed: an even higher return than is now being enjoyed, reduc­tion of risk through diversification, and enrichment of economic development.