Granholm: $300 million from pension fund to lure businesses to Michigan

Gov. Jennifer Granholm Thursday unveiled a $300 million investment program that will use the state’s pension fund to lure small- and medium-sized businesses to Michigan and help companies already here to grow.

Invest Michigan! will divide its fund equally between the Growth Capital Fund, which will make direct investments in venture-capital and expansion-stage companies, and the Michigan Opportunities Fund, which will target potential acquisitions and buyouts. A Business Leadership Council, led by Roger Penske, chairman and chief executive officer of Penske Corp., and comprised of about 20 of the state’s top business leaders, will offer its expertise and support to the program.

“It’s later-stage investment capital we’ve lacked in Michigan,” Granholm said today at a press conference at Cadillac Place in Detroit. Venture capital is often concentrated on the coasts, she added, which can lure Michigan entrepreneurs away from the state: “A great idea that’s born at the University of Michigan that we want to turn into a good business, the venture capitalists on coasts will come knocking and say, `We want you to move.’ We want to keep those businesses here.”

The program is one Granholm announced in her State of the State address in January.

Beringea and Credit Suisse will manage the growth fund, while Glencoe Capital will manage the opportunities fund.

The program’s $300 million represents about one-half of one percent of the state’s $57 billion retirement pension fund. State Treasurer Robert Kleine said actuarial assumptions for Invest Michigan! posit an eight percent return on its investments.  About 16 percent of the state pension fund is invested in private equity.  Over the last five years, rates of returns on those private equity investments have been around 22 percent; over the last 10 years they’ve averaged 11 percent.

“Both of those are obviously well above the 8 percent rate of return, which is sort of the watermark you’re looking for,” said Treasury spokesman Terry Stanton. “The expectation is that the potential rates of return are, generally speaking, very good.”

Companies can contact the state to request funding, but most companies targeted for investment are expected to be sought out by the program. There is no formal application process for funding.

Granholm was joined at Thursday’s conference by Kleine and Jim Epolito, CEO of the Michigan Economic Development Corporation. “We’re a capital-starved state,” Epolitio said. “But we’re starting to build momentum, and this is another great tool that we can use to bring to bear to sell Michigan.”

Also joining Granholm were several members of the all-volunteer leadership council: Penske; Rich Peters, managing director of Transportation Resource Partners; Sandra Pierce, president and CEO of Charter One Bank; and Josh Linkner, founder and CEO of e-Prize.

Officials said the council will help to identify promising businesses, connect companies with their own extensive network of contacts, help facilitate deals and ensure their due diligence and provide advice.

“These are people who are passionate about the state,” Penske said. “And with the expertise they have, and how can they link us to other opportunities, it’s a great retention tool.”

Penske said he hoped the Big Three would get involved in Invest Michigan! to help to expand its supplier base in the state. No industries are excluded from the program, but health care, technology and alternative energy companies are expected to receive the lion’s share of the investment.

“We spend a lot of time looking in the rear view mirror [in Michigan],” Linkner said “This is an opportunity to look toward the future.  The power of an entrepreneurial company can really change the landscape.”