Treasurer touts Innovation Fund; criticism emerges

State Treasurer Janet Cowell has what sounds like a winning idea: an N.C. Innovation Fund that would invest some state pension funds in businesses with significant operations in North Carolina. By investing in those companies with the $230 million fund, the treasurer hopes not only to help North Carolina businesses but also realize a handsome return for the pension fund. Cowell said Monday that Credit Suisse will manage the fund.

"North Carolina is a good investment,” Cowell said in a news release. “As we look globally for opportunities to achieve a high rate of return for our pensioners, we need to be diligent in looking into the possibilities that are in our own backyard.”
Her office said that investments "will be aimed at building upon the strengths of the North Carolina economy" and will target high growth industries such as life sciences, technology, and clean energy.

The fund has the support of UNC President Erskine Bowles, an investment banker prior to taking the UNC job, and Gov. Bev Perdue. Cowell's office quoted Perdue as saying, “North Carolina has always been a state of innovation, and if we are to continue to compete in today’s global economy, we must support and encourage innovative thinking. Our creative thinkers are helping us emerge from tough economic times poised to take on the world.”

It was interesting that Perdue gave a fairly ringing endorsement to Cowell's idea, because Perdue's office was steaming last fall when Cowell raised objections about the Perdue administration's plan to use design-build-finance legislation to complete I-485 around Charlotte. Cowell was worried, among other things, about whether the financing scheme amounted to taking on more debt, though Perdue's office argued that the proposal did not involve incurring debt.

While Cowell's plan sounds attractive, one fellow Democrat was raising questions about the plan. Michael Weisel, a lawyer with extensive experience in corporate finance and investments, called the plan "ill-advised" and fashioned with insufficient analysis.

There may be those who think Weisel is crushing some sour grapes, given that he ran unsuccessfully for treasurer in 2008 when Cowell won the Democratic primary and the general election.

Here's part of what Weisel had to say:

"I believe this is an ill-advised investment allocation – hastily made with insufficient analysis and due diligence. Particularly in light of the fact that the Office of the North Carolina State Treasurer still lacks the professional oversight of an experienced Chief Investment Officer.

"Historically, targeted geographic and social pension fund investing in other states has turned into slippery slopes of cronyism and subpar investment returns.
"North Carolina will be joining targeted investing with California, Michigan, Ohio and Indiana in making pension fund investment decisions to save/create jobs. These Economically Targeted Investments (ETIs) may be a laudable goal; however, there is normally a policy debate about the merits of such actions with the legislature, the public and various pension fund constituency groups (e.g. the pension fund recipients) weighing in on the merits and risks prior to the investment allocation decision.

"Many of the states implementing these investments passed specific legislation authorizing such an investment. This did not happen in North Carolina. One might conclude there was deliberate action to sidestep the debate about economically targeted investments by rushing a Request for Proposal (RFP) through at year-end….
"This is a Fund of Funds, meaning CFIG will invest in ‘local’ fund managers. This raises a question; will local fund managers who made political contributions be prohibited from receiving NC pension fund dollars from CFIG?

"….. Economically Targeted Investing may be a goal most North Carolinians wish to pursue. "Without a vigorous public and legislative debate, we will never know the true answer. The potentially disastrous consequences of failing to engage in that debate are evident!