Legislative Audit Bureau evaluation of SWIB

Per our last committee meeting we are in the process of setting up a meeting with SWIB Executive Director Keith Bozarth to get his opinion and advice on reaching the goal of growing the availability of early stage and venture funds available in Wisconsin.

Of interest to Committee members relating to that discussion is an evaluation of SWIB that was released today by the Legislative Audit Bureau. There are several items of note in the report, but I would like to highlight two sections for the committee.

The first is a section on SWIB's Wisconsin private equity portfolio;

The Wisconsin private equity portfolio was established in 2000 to focus on venture capital funds active in Wisconsin and the Midwest. Through 2006, the Investment Board has committed $180.0 million to four venture capital firms. Of that amount, $77.7 million has been invested, including $32.5 million in Wisconsin companies.

The Wisconsin private equity portfolio had negative returns and significantly underperformed its benchmarks for all periods at the end of 2005 and 2006. The Investment Board attributes the underperformance to the fact the portfolio is relatively new: early-stage private equity investments are expected to earn below-benchmark returns until several years have passed. Consequently, it will be important to closely monitor the performance of this portfolio in future years, to ensure it provides the level of return that meets the Investment Board’s fiduciary
responsibilities.

The second point pertinent to previous committee discussions is about highlighting the successes of Act 255 and SWIB investments in Wisconsin. In the report the LAB recommends that "SWIB should highlight the performance of its private equity portfolio in its annual report to the Legislature."

SWIB responded by saying the following;

SWIB will provide this information in our annual report.

Private equity investments often take a number of years to achieve positive returns. The Wisconsin Private Equity Portfolio began in 2000 but a large portion of its current funding was allocated in 2004 and 2006. Therefore, its performance track record is relatively short. While returns since the inception of the portfolio continue to lag the vintage year benchmark, there has been a notable improvement in 2007. Preliminary results as of June 30, 2007, indicate that the six-month return was 23.2% compared to 13.8% for its benchmark. The 12-month return was 18.3% compared to 16.2% for the benchmark.

The whole report can be found here: LAB Homepage