Challenge: The development of new regional economic clusters requires broad investment in a variety of asset classes. Traditionally, investors choose their targets one-by-one, identifying firms with the right mix of investment risk and possibility of returns. However, this approach often fails to provide capital broadly in a way that will spur the creation of a new economic cluster.
Solution: State leaders could establish a multi-asset renewal fund (MARF), a highly customizable finance mechanism for cluster-based development. An investment firm can bundle asset classes of a particular cluster into a MARF to attract capital, leverage public sector funds, and distribute impacts across an industry. MARFs are large investments of $300 to $500 million, consisting of a combination of stocks, bonds, private equity, futures contracts, and infrastructure finance products. MARFs are operationalized by a licensed alternative asset manager, with biannual evaluations to rebalance risk by adding or eliminating projects or companies. By having multiple assets classes bundled into one investment fund, large institutional investors (like pension funds or wealth managers) are able to invest in a cluster with reduced risk and broader impacts.
Example: MARFs were developed by Corymbus Asset Management in partnership with the Global Cleantech Cluster Association, and are being tested in Finland and Switzerland, with new applications in the United States (the Great Lakes region) and Canada. Finland’s MARF assessment and investment has resulted in the identification of smart grid, smart mobility, and green chemistry clusters, each comprised of small firms, growth equity companies, and publicly traded firms. Sample infrastructure projects include upgrades to energy utilities to incorporate urban mining (waste-to-energy and other high value by-products), Internet of Things, and blockchain technology. Based on simulations and ten-year backtesting, MARFs can yield risk-adjusted returns of 8 to 12 percent, depending on portfolio allocations.