CARSON CITY, Nev. -- The $13.3 billion Public Employees Retirement System of Nevada is under pressure to invest its venture capital allocation locally, at a time when three venture capital firms are moving into the state.
Lt. Gov. Lorraine Hunt testified about the problem before a state legislative subcommittee on June 30, arguing that whenever possible, the state should invest state workers' money in Nevada businesses. But she also stressed that no investment would be made unless the Nevada businesses met stringent requirements, said her spokeswoman, Kris Absher.
"The next legislative session doesn't begin until January 2001. But meanwhile a subcommittee, set up in 1999, is looking into ways to promote economic diversification. Sparking venture capital in Nevada is one of the subjects under discussion," said Ms. Absher. Pathway Capital Management LLC, Irvine, Calif., has run the pension fund's $244 million alternatives program for 17 years, making direct investments.
Meanwhile, Las Vegas is seeing a small influx of venture capital firms and a boom in the number of technology companies. Vestar Capital Partners LP, New York, opened an office there recently; Las Vegas Angels LLC was just set up; and Playgroup Ventures LLC is moving there from New York this month.
And 80 technology companies have moved in, many of those since October, creating their own "Silicon Oasis."
Robb Smith, managing principal of Millennium 3 Venture Group LLC, Reno, Nev., is behind the Nevada Economic Development Commission's push to encourage the pension fund to invest locally. He was scheduled to meet with Pathway executives the week of July 31.
"The pension fund has never invested in Nevada companies," said Economic Development Commission director Bob Shriver. "We're not asking for special treatment, we're just saying it would be nice if they invested in some venture funds in Nevada now that there are some viable products. Until recently, we didn't have any venture cap funds."
Somer Hollingsworth, president and chief executive officer of the Nevada Development Authority, said pension system officials told him they would consider giving money to a qualified venture capital fund if it met necessary requirements.
Laura B. Wallace, investment officer at the state employees' fund, Carson City, said in-state investment is "a matter of what the opportunities are here."
"We have had a number of discussions with the commission about this and the dialogue has been productive. But it's up to Pathway to make the investment decisions," she said.
Jim Reinhardt, managing director at Pathway, said: "We have no special geographic criteria. We'll invest in any fund in any location as long as they meet our criteria and can make money for us." He would not detail the criteria.
Nevada venture capital managers that approached Pathway in the past did not meet its criteria, he said.
Mr. Smith, who raised $30 million in his first fund and is targeting $40 million for a second fund, focuses on early-and late-stage venture cap companies in business services and fiber optics. He hopes his new fund will attract institutional capital.
"The investment valuations are very attractive here and quite low, compared to the feeding frenzy going on in the (Silicon) Valley," he said. "We have an exclusive deal flow here that is not available in other areas."