CENTER FOR COMMUNITY CAPITALISM
THE FRANK HAWKINS KENAN INSTITUTE OF PRIVATE ENTERPRISE
THE UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL
.
Escheats Funds:
An Overlooked Source of Public Capital for
Business Development in North Carolina
Michael A. Stegman and Aaron McKethan
September 12, 2005
Prepared with the support of:
The Rockefeller Foundation
1
Michael A. Stegman is the MacRae Professor of Public Policy and Business at the
University of North Carolina at Chapel Hill, Chairman of the Department of Public
Policy, and Director of the Center for Community Capitalism in the Kenan Institute of
Private Enterprise.
Aaron McKethan is a doctoral student in the Department of Public Policy and a Research
Assistant in the Center for Community Capitalism.
2
Abstract
Improving capital access, especially access to equity, has become an increasingly
important component of economic development policy because of the growing
recognition that small business drives our entrepreneurial economy. Half of all U.S. non-
farm private output and employment was generated by small firms, those with 500 or
fewer employees, in 2003.
Rather than try to tap North Carolina’s public employee pension fund as a source
of equity capital for North Carolina companies with job-creating potential—which he
didn’t think would be either fiscally prudent or palatable among the constituency of
retirees who had seen other states’ public pension funds head down this path before, and
sometimes with disastrous consequences—State Treasurer Richard Moore targeted the
state’s $600 million unclaimed and abandoned property, or escheat, fund as his capital
source of preference. With a successful legislative campaign behind him that allows up to
20 percent of the Escheat Fund surplus to be invested in private equity, this case study of
North Carolina’s experience should be useful to other states whose pension fund