Important Points to Know Regarding Pension
does the Pension Investment Bill do?
It amends 47-20 to add
47-20-87 so that the Employees’ Retirement System is authorized to invest
no more than 5 percent in alternative investments in addition to all
eligible investments currently authorized by the law. Safeguards allow for prudent risk
management. The law provides
certain information be disclosed under process of law or by officers
otherwise entitled for official purposes.
is an “alternative investment” considered? Currently, Georgia
only invests in common stock, bonds, and short term investments according
to the Annual Report of the ERS.
The Pension Investment Bill allows for further investment outside
of these three areas. Please
refer to Section 1, Line 18 of SB 80 for a complete list of the types of
alternative investments available.
does the lack of state support for alternative investment hurt Georgia? PricewaterhouseCoopers/National
Venture Capital Association MoneyTree™ Report based on data from Thomson Financial in 2006 reports over 90% of the venture capital investments
made in "later stage" Georgia companies were made by venture capitalists located
outside the state. There is a strong likelihoodthat these investments are an interim step
before merger with another company in the venture capitalist's portfolio
-- located outside Georgia. In most cases, the companies absorbed are moved out of
state along with the jobs and resources too
alternative investments benefit Georgia’s pension plan? Public-sector
fund managers have invested private equity for years in every state but
Georgia. Over the last 30
years, alternative investment returns exceed traditional annual equity
returns by 5 to 7 percent according to the Metro Atlanta Chamber of
Commerce. According to the Georgia Public Policy Foundation, California’s
pension investment returns were 50 percent higher than Georgia in
2004. A similar approach
would have added $4 billion to Georgia’s pension.
many other states invest pension funds in alternative investment plans?
Every state except Georgia has legislation allowing the investment
of pension funds in alternative investments. In 2005, approximately 66% of state pension funds had
investments in the alternative assets class, which includes private equity
and venture capital. Among
125 state retirement systems examined by Wilshire Consulting in 2006, the
average asset allocation to private equity by a state pension fund is 4.4%
according to Southeast BIO.
do VC programs help Georgia? Private equity investment programs allow states
to keep homegrown startups in place.
This is a crucial tool if states wish to retain businesses at
home. When Georgia loses
businesses it does not only lose high returns in lost investments; the
state loses intellectual capital, future job creation, and a segment of
the tax base.
it “risky” to invest public funds in venture capital? Earnings
from private equity investments have by far outweighed losses suffered
during market downturns.
However, putting a cap on the amount invested in private equity can
protect pension holders from downside risks while offering a chance to
reap rewards from the success of local businesses. Georgia’s Senate Bill 80 mandates
pension plan investment cannot exceed 5 percent of the plan at any time.
does Georgia need the Pension Investment Bill? Georgia is the
only state that does not allow state pension funds to be invested in
alternative investment plans. The Employees’
Retirement System needs a fully diversified investment base to meet the
earnings level required to pay benefits to all state employees. The Pension Investment Bill aids
this effort by allowing the state to invest in alternative assets.
SE BIO did a white paper on pension investment in
alternative assets. The results
are in the table below:
SE BIO Statistics
Amount Invested in Alternative
FRS invested 3.2% ($3.5 billion)
NC invested 2% ($1.5 billion) in
VRS invested 5.1% ($2.7 billion)