Venture-capital bill argued
By John Duchemin
Advertiser Staff Writer
A bill that would require the Employees' Retirement System to invest in local venture capital funds has passed the state Senate and moved to the House, despite protests by the ERS that the bill would force the pension fund to make imprudent investments.
The Senate voted 23-1 on Tuesday to make the $8.4 billion ERS invest an unspecified percentage of its portfolio in Hawai'i venture capital. The investments would inject millions or tens of millions of dollars in pension money into venture capital funds supervised by the Hawaii Strategic Development Corp., the state's venture-funding arm.
The bill, introduced by Sen. J. Kalani English, D-5th (Wailuku, Kahului, Upcountry), is on its way to the House Labor and Finance committees for review.
Supporters said the goal is to ensure that ERS uses some of its money to help develop a diverse local economy and stimulate high tech, an industry that has struggled in Hawai'i due partly to meager funding. If ERS invests locally, others could follow the fund's lead, said Sen. Colleen Hanabusa, D-21st (Nanakuli, Wai'anae, Makaha), who helped push the bill through the Senate.
"We have found the ERS doesn't invest in Hawai'i entities," she said. "And if our own retirement system isn't willing to invest in Hawai'i, why should anyone else come and invest in Hawai'i?"
ERS has about $300 million — or 3 percent — of its portfolio in high-risk "alternative investments," including venture capital, but none of it is invested in Hawai'i.
But the bill's fate is uncertain, several state officials said, because it has received a lukewarm reception from both ERS and the administration of Gov. Ben Cayetano.
Officials for the pension fund and other departments said a legislative mandate to invest in Hawai'i could conflict with ERS' main duty: to increase and preserve the value of its fund, which pays pensions for more than 30,000 state and county retirees and beneficiaries.
ERS will "invest in attractive Hawai'i investments when they present themselves," David Shimabukuro, ERS administrator, said in testifying to the Senate Labor Committee. "We do not feel that it would be prudent to mandate that a percentage of the ERS' portfolio be invested in ... (Hawai'i) enterprises each year."
Hanabusa, however, said ERS hasn't proven willing to support the local economy through local investments. She said investments in Hawai'i venture capital could prove less risky than, in hindsight, did ERS' investment in now-bankrupt Enron — on which the fund lost more than $10 million.
"I have very little empathy for the ERS," she said. "They have to be told to do things. ... It's almost disingenuous to have them say all these things about concerns, when they've gone out and done all these things, Enron and all this other stuff."
The bill also has drawn opposition from the Hawai'i Strategic Development Corp., which oversees more than $10 million of state venture investments in high-technology companies.
"There has not been any ERS investment in local venture funds, and we'd certainly like to see them participate," said John Chock, the development corporation's director. "The fact is, they could have a very strong impact on our efforts to diversify the economy. But we've never supported mandates — we recognize the trustees (of ERS) do have their fiduciary responsibilities."
The bill resembles an earlier Cayetano-supported measure that died when ERS officials persuaded the governor to withdraw his support, said Joe Blanco, technology adviser to the governor.
"Any time one wants to mandate investment decisions, you need to be a little bit careful," Blanco said.
Reach John Duchemin at jduchemin@honoluluadvertiser.com or 525-8062.
