ALBANY – At a time when entrepreneurs and start-up companies are having a hard time raising funds for their business ideas, State Comptroller Thomas DiNapoli said the state’s giant pension fund is looking to invest $400 million in New York firms.
“It’s a tough economy out there. This kind of program may be another option for you,” DiNapoli said of the state and local government pension fund’s In-State Private Equity Program.
The fund has invested $624 million in New York companies through their government-run pension fund in the past six years, DiNapoli reported Tuesday, with money going to emerging and established small to mid-sized companies that the comptroller’s office says has created 4,000 jobs in the state while returning an estimated 20 percent return to the pension fund.
The fund has targeted about 45 percent of the investments in upstate communities.
The program was designed to have the state’s Common Retirement Fund, the third-largest public employee pension system in the nation, invest in New York companies while at the same time leveraging other outside sources of money to help the companies expand or start up.
In all, 252 companies have gotten $684 million in pension fund investments, including $55 million in the Buffalo area.
The pension fund channels money to the companies through one of 18 private equity firms, such as Buffalo’s Summer Street Capital Partners, which can then play an active role in helping those getting the investment money with management and other strategic services. The equity companies, which raise money from other investors to add to the pension fund’s money, often end up for a period of time in ownership roles of the firms getting the cash. The money has gone to firms engaged in nanotechnology, biotechnology, clean energy, material sciences and other industries.
Michael McQueeney, a managing partner at Summer Street Capital Partners who joined DiNapoli at a news conference at the comptroller’s Albany office, said his firm uses everything from business plans and growth potential to quality of the management to decide where money is invested.
The equity firms make money either from a fixed fee or a percentage of the profits of the company in which the pension fund is investing.
“It has been an economic development tool. We’re investing capital, and we’re in the business of growing business,” McQueeney said. His firm has developed three different investment pools from the $100 million received from the pension system since it became the program’s second partner in 2001.
Summer Street has invested in companies – from three years old to one Lancaster firm, Reichert, which is more than 90 years old – in Buffalo, Rochester, Syracuse, Albany and downstate communities. He acknowledged the risk, noting three companies over the years have generated losses for the fund’s investment, while others have seen returns of four to six times the value of the investment.
McQueeney said in most cases his firm becomes the majority owner of the company getting the investment money, which means seats on the board and roles in major decisions.
In all, 71 companies have exited the program since getting money from the pension fund, the vast majority having paid back the money and growing. They had received a total of $179 million in capital from the fund and returned $293 million, the comptroller reported. He estimated the program has leveraged a total of $7 billion when all the pension fund and private investment money is counted. Among the dozen or so Buffalo-area companies that have or are currently being funding under the program are Reichert, Unifrax, AccuMed, Innovative Concepts in Entertainment, Willcare, Palladium and Ontario Specialty Contracting.
As sole trustee of the pension system, DiNapoli has a fiduciary responsibility to protect the assets of the more than 1 million members of the fund. But the program, first begun in 1999, has exploded with New York investments since DiNapoli became comptroller: He has doubled the investments in the program to more than $1 billion.
DiNapoli said the fund still has $400 million available to invest in New York companies. “I hope this sparks some phone calls to our office. We want to get this capital out the door,” DiNapoli said.
Jordon Levy of SoftBank Capital, a Buffalo venture capital firm, said the pension fund has provided his company with about $100 million to invest since 2005. The investments have gone to local companies and Internet firms such as Huffington Post and BuzzFeed. Levy’s company was given a second installment of pension fund money to invest – totaling $50 million – in May.
“It’s been a great partnership for us (and) for entrepreneurs,” Levy said.