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State Treasurer Cowell launching second fund that invests in NC companies

Hugh McColl Jr., former Bank of America chairman and CEO, left, introduces N.C. Treasurer Janet Cowell prior to her announcement about the pension fund's Innovation Fund at the Bechtler Museum of Modern Art in Charlotte on Wednesday.
Hugh McColl Jr., former Bank of America chairman and CEO, left, introduces N.C. Treasurer Janet Cowell prior to her announcement about the pension fund's Innovation Fund at the Bechtler Museum of Modern Art in Charlotte on Wednesday. jsiner@charlotteobserver.com

North Carolina’s $90 billion pension plan is launching a second fund that invests in North Carolina companies after a strong five-year run by the first fund, state Treasurer Janet Cowell said Wednesday.

The second North Carolina Innovation Fund will pump $250 million into private equity funds and companies with ties to the state, now that most of the $232 million in the first fund has been committed.

Since its launch in 2010, the first fund has produced an internal rate of return of 20 percent, Cowell said.

“With a 20 percent return, we felt like it had been a good experience,” Cowell said after an event announcing the fund at the Bechtler Museum of Modern Art in Charlotte. “So it’s time for round two.”

In the fiscal year ended June 30, the state pension fund as a whole posted a return of 15.88 percent, according to the fund’s latest annual report. That beat the long-term target rate of 7.25 percent but was below the 22 percent return of the S&P 500 index.

The idea behind the innovation fund is that it produces returns for pension plan participants from teachers to firefighters and helps boost the economy in North Carolina.

The treasurer’s office said the fund has helped support more than 6,200 jobs in the state.

GCM Grosvenor, an investment firm that manages the innovation fund through its Charlotte office, will also run the second fund.

For managing the fund in fiscal year 2012-2013, the pension plan paid $1.6 million in fees to a Credit Suisse subsidiary that was bought last year by Grosvenor, according to the state treasurer’s office.

The first fund made investments with eight private equity managers and 12 companies. Investments in companies are made alongside other private equity managers.

Four Charlotte-based firms, Carousel Capital, Falfurrias Capital Partners, Frontier Capital and Kian Capital, are among the investment managers that work with the fund.

Falfurrias was co-founded by former Bank of America CEO Hugh McColl Jr., who was on hand for Cowell’s announcement Wednesday. In an interview, McColl noted the innovation fund is still a small part of the state’s $90 billion pension fund.

“I hope the number will get larger,” McColl said. “It makes sense for the state.”

Falfurrias will likely talk to the fund’s managers about a second investment, he said.

The innovation fund faced scrutiny last year when the International Business Times reported that Carousel Capital received a contract with the fund in 2011 only weeks after a fundraiser for Cowell took place at the home of Erskine and Crandall Bowles. Erskine Bowles is a Carousel Capital co-founder, and his wife, Crandall, is a director at JPMorgan Chase, which does business with the pension fund.

Cowell said politics don’t play a role in the fund because it’s run by an outside manager, Grosvenor.

“They are screening these investments,” she said. “They make decisions. It’s not a factor.”

Erskine Bowles told the International Business Times last year that he was not involved with the Cowell event and that he has not had an active role at Carousel since 2005. Schorr Johnson, a Cowell spokesman, said Crandall Bowles’ political contributions did not create any issues under SEC rules on political contributions by investment advisers and that as a senior adviser to Carousel, Erskine Bowles is not a “covered asssociate” under the rules.

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