Board blasts report of $262 million loss

The State Investment Board Wednesday disputed a financial news service report that biotechnology stocks in its retirement funds declined by $262 million in 1994. The actual loss totaled $227 million.

John Nelson, an investment board portfolio manager, called the report Monday by Bloomberg Business News "inflammatory" and "inaccurate," although Nelson's own check of the performance of 45 biotech stocks held in the fund's portfolio didn't differ vastly.

The market value of the stocks dipped from $552.7 million at the beginning of the year to $335.3 million at the end. In addition, several biotech stocks were sold for realized losses of $9.4 million.

In a broadly diversified portfolio, he said, some stocks will always underperform.

The board had almost $30 billion in retirement money under management at the end of 1994, $19 billion of it invested in stocks. Biotech companies accounted for $360 million, less than 2% of all the fund's equities.

Nelson defended the investment of retirement money in the highly volatile biotech sector, and said there was nothing wrong with it "as long as you take a disciplined approach, do careful analysis and are diversified."

"We wouldn't hold them unless we felt the potential gains justified the potential risk," he said.

The report came in the wake of news that the board's cash management fund, known as the State Investment Fund, had lost $95 million in risky investments in derivatives.

Derivatives are financial products based on, or derived from, the underlying price movements of stocks, bonds, currencies or interest rates.

The biotech holdings in the retirement fund have bounced back 5% since the beginning of the year, erasing almost $17 million of the paper loss.

The fund takes a long-term approach to its holdings in the volatile securities, Nelson said.

Since cash continues to flow into the fund more rapidly than it is paid out, Nelson said he could not foresee a reason that portfolio would be forced to sell its biotech issues at a loss.

The board's biotech investment strategy involves buying a wide range of young companies, "some of which will not work out," in the hope of catching the big winners that will emerge, such as Amgen and Genentech Inc., long- term holdings of the fund in which profits were taken in 1993.

"We feel comfortable doing that," Nelson said. "We invest in them for potentially superior results for the beneficiaries" of the state retirement fund.

None of the biotech companies is a Wisconsin firm, Nelson said.

Biotechnology stocks tend to move in cycles.

Those with small capitalizations have had rough sledding for the past two and a half years, Nelson pointed out, "but the prior five years were spectacular."

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