Building the Venture Capital Infrastructure in Ohio
Manager, the Ohio-Midwest Fund
The investment fund that leverages public employee retirement savings to catalyze high-quality jobs and businesses in Ohio has changed its investment approach somewhat in the last year or so, deciding to place money only with fund managers that have recorded upper-quartile returns.
"We're building the portfolio with fewer relationships, but bigger commitments," the Ohio-Midwest Fund's Mel Carter told the OVA at its September luncheon. The reason is pretty simple, he suggested: upper-quartile managers produce "substantially higher" returns than those in the median.
The Ohio-Midwest Fund is a so-called "fund of funds," capitalized by Ohio's public employees' pension system and managed by Credit Suisse, which manages funds for several states through its Customized Fund Investment Group, and which added $2 million of its own capital to the Ohio-Midwest Fund. Since it was established in 2005, the fund has invested in 16 fund managers, which in turn have committed $203.9 million to 366 investments, including in what it considers to be 37 platform companies in Ohio. That has attracted add-on investments of $166 million. The fund estimates these investments have helped to create at least 3,400 jobs.
This is the second consecutive year in which Mr. Carter has presented OVA with a status report on its progress. Last November, he told the group that the fund remained bullish on Ohio, despite the brutal economic conditions.
This time, besides noting the change in investment approach, Mr. Carter outlined the considerable progress Ohio has made in building its venture capital infrastructure in the last few years. "When I came on board nearly four years ago, the City of Columbus had one venture fund and one private equity group," and they didn't really talk to each other, he said. So he spent the first couple of years helping to make sure everyone was on the same page, while simultaneously helping to build the expertise and knowledge base around the state, and getting all the players to work together. Obviously, Ohio's Third Frontier program added plenty of stimulus to those efforts.
The Third Frontier project was designed to shield investment decisions from political considerations as much as possible, by establishing a rigorous process for choosing the best targets for funding, regardless of region. That has similarly held true in the case of the Ohio-Midwest Fund. Mr. Carter mentioned that since its inception, about 60% of the total capital committed by the fund managers in which it has invested has been put to work in Northeast Ohio.
The fund has thus far had four exits or partial exits. "There are some extraordinary companies in the portfolio," he said. "You're talking about superlative technologies and superlative positions in the market." He said one of the stars has been Shearer's Foods, a countercyclical performer. "When the economy got bad, people started eating more potato chips."
Asked if Credit Suisse has been satisfied with the progress it has made in Ohio thus far, he responded: "We've been very happy with the growth pattern of this program."
Webcasts from the Meeting:
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