Silver State Opportunities Fund reports positive net

The Silver State Opportunities Fund (SSOF) generated a positive net return of 7.91 percent as of June 30, 2014, comparing it to the current yield for the five-year U.S. Treasury note of 1.55 percent, said State Treasurer Kate Marshall, chairwoman of the Nevada Capital Investment Corporation Board of Directors.

The net return of 7.91 percent is an audited figure which is included in the financial statements for the Silver State Opportunities Fund (SSOF). The financial statements, audited by the firm of Ernst & Young LLP, are based on an independent third-party valuation of the fund’s investments.

“In 2011, I approached the Legislature with the concept of creating the state’s first private equity fund with the purpose of providing greater returns for our schools and job creation,” Marshall said. “Today’s announcement is most certainly a validation of what this program can accomplish for Nevada. These positive returns for the State Permanent School Fund are more than seven times greater than the fund’s investments would have earned last fiscal year.”

Background

The authorization to invest a portion of the Permanent School Fund in private equity was vital to diversifying and improving returns for the investment portfolio of the fund, which by Nevada Revised Statutes sends its earnings to fund Nevada K-12 education. An ancillary benefit of the private equity program derives from the statutory requirement included in the Treasurer’s Office original bill to invest in private companies in Nevada, thus helping to diversify and grow Nevada’s economy.

To date, the Silver State Opportunities Fund has made commitments to three privately held asset managers, each of whom have located and staffed offices in Nevada. Those companies have in turn made investments in five companies in Nevada. The statutorily required NCIC annual report will be presented to the Board of Directors for approval in November. In addition to returns for the fund, the annual report will highlight a number of metrics, including jobs created or retained in Nevada as a result of SSOF investments, as well as the positive effect on total private equity investment in Nevada.

Sponsored by Treasurer Marshall during the 2011 Legislative Session, Senate Bill 75 created the State’s first in-state private equity investment fund. The goal of the fund is to capitalize on investment opportunities in Nevada, create jobs and increase funding for Nevada’s K-12 schools.

SB 75 created the NCIC, a nonprofit corporation overseen by a seven member Board, including appointees by the Governor and legislative leadership from both sides of the aisle. Under SB 75, up to $50 million from the State’s Permanent School Fund may be diversified through the NCIC. The Permanent School Fund is comprised of non-tax dollars; money in the fund primarily comes from public land sales, estates escheated to the State, and fines collected under the penal laws of Nevada. Earnings from the fund go to Nevada’s K-12 schools.

“Net return” represents the Net Internal Rate of Return (“Net IRR”), which is the most common metric used to evaluate the performance of private equity funds and which takes into account all net cash flows, including management fees and the current market value of investments. According to financial experts, funds typically do not report a net IRR this early in their investment cycle due to the “J-curve” effect for private equity investments, a term used to describe the longer term nature of private equity investments and the normal period of time it takes to work with management of a private company to generate value.

— State of Nevada’s Treasurer’s office