By next week The Columbia Star Business Page will initiate an investment section on its second page. As part of a local weekly, the investment section will lean a little on local public companies and on local investment guidance professionals. However, most stock investors don’t care whether the opportunities reported are local or global. They just want spectacular returns at low risk.

Stock prices reported will be from the publicly held companies with a strong Midlands presence. That way what gets out may, in fact, come from local sources.

Local investment opportunities at various levels of risk and regulation will be covered, particularly the venture capital funds and the private equity funds. These are tight little organizations that support ideas and start–ups. Regionally there are regular gatherings of such groups, people with money looking for entrepreneurs. Formerly in SC there was the “Dare to Deal” conference at Hilton Head, where Affinity Technology Group got its early direction.

Air South makes a good local case in point because the elected officials involved never had the advantages of good local risk–capital coverage. Between 1978 and mid–1993, America had seen 176 airline start–up attempts, and out of that 176 only one was still flying as The State editorial said Air South “was a risk worth taking.” But there was no risk. Local and state governments put $20 million into Air South, and It was guaranteed to fail.

Even had it succeeded, city and county and state governments would have realized nothing in gains because their $20 million was put in with no legal call on ownership and with no agreement on returns. Columbia press coverage on principles of seed capital investment never came out in the Air South era.

The renewed challenge here in Columbia and particularly in USC’s Innovista, the research campus, is not only to run successful business incubators but to keep the businesses and headquarter the businesses and grow the businesses here. The real benefits for Columbia in the long haul is in keeping the businesses at home. But the more a new business makes parallels the more attention a new business attracts. Then a sale and a relocation is in the offing.

The best means to keep home companies home is to attract home money early on, and that’s where The Columbia Star Business Page can help by reporting the local opportunities to the locals.

Another feature will be the “Investment for Dummies” column – a dictionary, actually – where terms of the trade are defined and illustrated with clear usage.

The difference between a preferred share of stock and a common share, for instance, will be explained along with the term “common equity,” something better known at SCANA. Targeted rates of return on common equity have controlled our electricity prices for the better part of a century. But few readers understand that.

Next week The Columbia Star Business Page digs into hedge funds and private equity funds, the kinds of investment vehicles Harvard University used last year to hit a stellar 19.2% return on its endowment portfolio. Over the past 10 years Harvard claims an annualized average return of 16.1%. For the past twenty years, Yale claims 16%.

In 1999, Darla Moore identified $25 million in her and her husband’s Texas hedge fund, and she marked that $25 million for what is now her eponymous business school at USC. Now the $25 million is worth $37 million, still in Moore’s hedge fund, a gain of $12 million, about 50% over six years. Praised by the press and by Joel Smith, dean of the business school, that 50% gain for the past six years is really 7% compounded annually for six years, the same 7% as the average annual return on all stocks for the past hundred years.

But during those same six years, a little over $1 million a year reportedly has been counted by the school as usable income, maybe $7 million all told. To assume the school’s total take on the fund, the $7 million usable income should be added to the fund’s retained gain of $12 million, bringing the total gain to $19 million, which is an annualized return of about 10%.

Another part of hedge funds poorly reported is the fee structure for their managers and owners. Typically a hedge fund annually charges its investors 2% of the total, whether the fund does well or not. Starting with $25 million, say, a 2% fee comes to $500,000 the first year, and over several years it becomes a few million dollars in management fees.

There’s roughly $1 trillion in hedge funds worldwide, and 2% of that covers lots of overhead and plenty of bad decisions.

On top of the 2%, though, there is usually a 20% charge taken off the gains. If the $25 million fund reaches a reported $37 million, and there’s another $7 million in usable income, typically the total $44 million has already seen 20% of the gains taken out. In other words and in irresponsibly loose numbers, a realized gain of just under $24 million charged 20% leaves $19 million, the reported gain, while about $5 million was collected in profit–sharing fees. Add the six years of 2% management charges, more than $3 million, and the total fee to management and owners comes to more than $8 million.

Philanthropic funds, of course, probably don’t suffer similar charges. After all, a gift is a gift.