Opinion: Daily Journal

A Risky Path to Add Venture

RALEIGH – There’s a move afoot in the General Assembly to give State Treasurer Richard Moore the authority to move millions of additional dollars under his control into venture-capital funds. If done properly, and for the right reason, the idea may have merit. But judging by the statements of some supporters – though, in fairness, not by Moore himself – there is great potential for mischief.

The funds in question are called escheats, which is an old-timey, green-eyeshades term for “money folks don’t know about.” Sometimes, it’s because they never knew about it – an insurance refund, for example, mailed to someone whose address changed and thus never received it. Other times, it’s money that someone forgot about – say, a small amount in an abandoned checking account.

These may sound like nickel-and-dime amounts, which is often (but not always) true. Even so, they can add up to big sums. The state’s escheats fund reportedly holds nearly $600 million. The state treasurer is required by law to try to return that money to the rightful owners, if possible, or otherwise to invest it to generate a steady stream of income to fund college scholarships.

As the Triangle Business Journal reports this week, the escheats fund has grown substantially in recent years even though Moore’s office has used a variety of innovative – and, merely by coincidence, very public – means to increase the payouts. During the same period, the rest of state government has experienced a cash crunch. The two trends couldn’t stay separate for long. Previous legislation has already “loaned” tens of millions of dollars to the Global TransPark, for example, and transferred some education items previously financed by General Fund dollars to escheats-fund financing.

Now, at Moore’s request, legislators are fashioning a “modernization” of investment rules for the fund to allow him to put up to 20 percent into stocks, real estate, and private equity accounts. One might well make a case for this diversification by saying that, realistically, the time horizon for the escheats fund needs to be longer than originally supposed. That is, it appears likely that the bulk of the principal is not going to be paid out to its owners in the short run, as they have proved difficult to identify. Therefore, the interests of the other legal beneficiaries of the fund – college students and their families – would be served by an investment posture that maximizes its long-term growth and income.

This rationale, however, applies only if the additional investment flexibility is devoted entirely to maximizing return. That means that the treasurer cannot elevate other goals, such as putting money into North Carolina-based investments, above the search for growth and value.

Unfortunately, that’s exactly what some lawmakers say the endeavor is about. “The reason we introduced [the legislation] was the prospect of investment in North Carolina and in using that money to help recreate our economy,” Rep. Nelson Cole, D-Rockingham, told TBJ. “And I hope we have it nailed down this time.”

I, on the other hand, certainly hope not. Such a policy would inevitably bring politics and cronyism into the mix, while sacrificing potential returns. We should do this the right way, or not at all.

Hood is president of the John Locke Foundation.