Ohio PERS Launches $50M Local Fund-of-Funds –

The Buckeye State wants to give its local economy a shot in the arm using its public pension money. The Ohio Public Employees Retirement System (OPERS) announced that it launched a $50 million fund-of-funds to focus on private equity firms that would back Ohio-related businesses.

The Ohio-Midwest Fund will invest $50 million over a period of 18 to 36 months in buyout, venture capital, mezzanine and other private equity funds that focus at least partially in making investments in Ohio and the Midwest.

Credit Suisse First Boston (CSFB) is managing the fund through its Customized Fund Investment Group (CFIG). It issued a questionnaire earlier this month for fund managers whose funds may be eligible for investment from the program. CSFB opened an office in Columbus, Ohio, and will likely announce a new professional it hired locally to run the program from there.

The Ohio-Midwest Fund is the latest in a series of state pension-funded economic programs run by CSFB. The investment bank runs similar programs through its CFIG unit for that states of Indiana, Oregon, Michigan and New York.

Mike Arpey, managing director with CSFB’s Customized Fund Investment Group, says he expects the fund-of-funds will see its investments more heavily weighed toward buyouts but with a sizable committment to venture capital. He said that CSFB is taking the step of contributing 2%, or $1 million, of the fund’s $50 million, as opposed to the standard 1% in similar programs.

Some skeptics have pointed out dangers in setting up programs that use pension money for local economic development. Respected academics such as Harvard Business School Professor Josh Lerner have warned that pension funds that engage in local economic development work risk becoming political tools at the expense of generating the best returns for their pensioners and that it will be difficult to find top-tier funds outside of the traditional private equity locales of the East and West Coasts.

Arpey says that he would assuage skepticism by pointing out that the Ohio-Midwest Fund is only one part of OPERS’ larger private equity program and that the fund will be managed from an entirely returns-oriented mandate. “We don’t have a different benchmark for these programs,” says Arpey. “That’s bearing fruit in other states we work in and will happen in Ohio.” He says that CSFB’s own investment in the fund at twice the usual rate is a sign of confidence in the program.