BOSTON - Massachusetts Treasure Joseph D. Malone introduced a program yesterday that will provide at least $25 million in venture capital for small businesses in the state.

As part of the program, the state's Pension Reserves Investment Management Board will invest the $25 million into a new Venture Economically Targeted Investment fund. The $25 million will come from the Pension Reserves Investment Trust, know as PRIT, one of the two state pension funds.

Malone has authorized the new fund to begin looking for an outside manager with experience in venture capital investing. An independent consultant has been hired by the pension board to decide on the best way to choose the manager, said Thomas Trimarco, first deputy treasurer for the state.

"This is something that we are all very excited about," Trimarco said. "Every top venture capitalist in the state was in on providing us with input on this program."

Trimarco said the program will provide funds to all kinds of corporations, not simply start-up companies. He said pension funds should expect a 15% to 20% return on venture capital investments.

The venture capital program is the latest attempt by Malone to improve and diversify the investments of the state's pension funds. In 1990, he made the performance of the state's funds one of his major campaign themes.

When Malon was elected, the state's two pension funds - the Massachusetts Teachers' and Employees Retirement Systems Trust, also known as MASTERS, and PRIT - were among the worst-performing funds in the country.

Since Malone took office, though, the funds' performance has improved. Malone said the state is on track to have MASTERS' unfunded liability fully funded by the year 2028.

Last month, Malone appeared before the state legislature and said that if the two funds were merged, it would save beneficiaries over $15 million a year.

If the legislature approves Malone's proposal, MASTERS would merge its $7.5 billion in assets with PRIT's $5 billion.

The new system of investing state pension funds would be handled by the pension investment boards, which currently manages PRIT funds.

The legislation would abolish the MASTERS pension board and the three-member Pension Investment Committee, a review panel that Malone oversees.

Malone said that even though he recommends that the two funds merge, he is still examining whether MASTERS should also invest $25 million in the venture capital program.

Trimarco said that the state will attempt to get Boston and the Massachusetts Bay Transportation Authority's pension fund involved in the program.

The MASTERS fund plays a pivotal role in Malone's Middle Class American Dream program, which allows lower-class families easier access to loans for homes. The fund has committed more than $300 million to the ongoing program.

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