CalPERS program deploys PE capital to overlooked markets
A lesson that many European pension funds and co-sponsored VC funds may care to emulate is ‘The California Initiative Program’, which was designed to invest in traditionally underserved, overlooked markets and companies that employ workers who live in economically disadvantaged areas. It has generated $205 million in gains and funded over 217 companies. Underserved rural areas offer inexpensively priced land and office space, available workers, lower living costs, government incentives, and potential for development of technology and infrastructure.
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The program has generated $205 million in gains and funded over 217 companies ranging in size from three to more than 22,000 employees across a full spectrum of industries, according to a report by the California Public Employees’ Retirement System (CalPERS).
The California initiative’s phase I was launched in 2001 with a capital commitment of $475 million. In October 2006, CalPERS announced a second allocation, a $500 million capital commitment managed by Hamilton Lane in an investment vehicle known as the ‘Golden State Investment Fund’.
“The California initiative is meeting the expectations we set when we launched the program,” said Charles P. Valdes, investment committee chair. “Besides positive investment returns, low-to-moderate income communities are getting a big lift to their economies.”
The report to the CalPERS investment committee shows that as of September 30, 2007, the California initiative program has enjoyed success across the board.
“In addition to generating attractive financial returns, the California initiative is providing a number of secondary benefits,” said Russell Read, chief investment officer. “Capital is going to previously overlooked markets and companies that employ workers who live in economically disadvantaged areas. In addition, a number of these companies are led by women and minority entrepreneurs and managers.”
Between 2001 and 2007, over 50 percent of California-based companies in the program were headquartered in outside areas where institutional equity capital has traditionally been invested. More than 40 percent of California initiative portfolio company employees live in zip code areas predominantly comprised of low-to-moderate income census tracts.
California initiative partners in phase I include: American River Ventures, DFJ Frontier, Garage Entrepreneurs Fund, Leonard Green & Partners, Nogales Investors, Opportunity Capital Partners, Pacific Community Ventures, Provender Capital, Yucaipa Corporate Initiatives Fund, Banc of America Capital Access Fund (a fund of funds focused on underserved markets).
The Golden State Investment Fund managed by Hamilton Lane includes as partners: DFJ Frontier, Levine Leichtman Capital, Pacific Community Ventures, and RLH Investors.
In urban areas, under-funded companies often are strategically located near centrally located businesses and transportation hubs. Furthermore, they can tap into large and diverse labour pools and gain favourable access to real estate, local consumer demand, and government incentives. Underserved rural areas offer inexpensively priced land and office space, available workers, lower living costs, government incentives, and potential for development of technology and infrastructure.
CalPERS is the USA’s largest public pension fund with assets totalling more than $240 billion. The system provides retirement and health benefits to approximately 1.5 million state and local public employees and their families. A copy of the California Initiative Report is available on the CalPERS web site.
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© Chilli Publishing Ltd 2008 |
28 FEB 2008 |
