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Fund Raider

Bill would close purse strings of taxpayer-backed venture-capital fund

By Eric S. Peterson
Posted // January 15,2014 -

The Utah Fund of Funds was established in 2006, and was eventually authorized to invest up to $300 million in venture capital-firms with any losses to be paid off with taxpayer dollars. The program was born in a time when the economy was hot, but since its crash, lawmakers have been reconsidering the program, which may have to begin receiving taxpayer bailouts within the next five years to pay off bad investments.

City Weekly looked at the troubles of the program and the lack of transparency in its operations in the Aug. 1, 2013, cover story “Going for Broke,” and now Rep. Jim Bird, R-West Jordan, has released a bill for the 2014 Legislature that would seek to dramatically rein in the FOF by halting taxpayer credits from backing future investments, placing legislators on the FOF board and opening up the organization to Utah’s open-records laws so that information about investments and the salaries of the fund’s managers can be accessible to the public.

“I’ve been in the insurance securities business for a long time, but I can’t imagine asking anyone for an investment without disclosing to them where the money’s going to go and what the fees are,” Bird says of the way the FOF currently operates.

FOF managers have argued that it’s not so much about secrecy as it is about making sure the FOF can operate in a way that’s conducive to investments. The FOF uses bank loans to invest in venture-capital firms, which then invest in companies in a process that ideally—but not necessarily—brings capital to Utah as well as create jobs and support local startup companies.

Lawmakers on the Legislature’s Business & Labor Interim Committee were generally supportive of Bird’s bill at their November 2013 meeting, but Rep. Eric Hutchings, R-Kearns, worried about making fund information public, since it discloses performance rates of early-stage companies still trying to get on their feet.

“Companies are extremely vulnerable during these periods of time,” Hutchings said.
But “turning the lights on” is only one prong of Bird’s reform. He also hopes that having a legislator from both the House and the Senate on the Utah Capital Investment Board—the FOF’s oversight arm—will better represent Utahns in the FOF’s decision-making process. As City Weekly previously reported, the UCIB meetings are on the state’s public-meeting-notices website, but beyond that are hard to find out about, and are not mentioned on the FOF’s own website.

But the biggest impact Bird’s legislation would have on the fund would be in cinching the purse strings on future investing. While the FOF was approved to invest up to $300 million in venture-capital firms, with taxpayers covering the losses, so far it has only invested approximately $125 million. Up till now, no taxpayer dollars have been cashed in to pay for losses. The deadline to begin paying back the original loans won’t hit until 2019. When that time comes, losses will be paid by taxpayers in the form of money drawn from Utah’s education fund.

Bird’s bill would cut out the FOF’s “safety net” for new investments, requiring that those losses be paid by the fund itself, instead of being hedged with public education dollars.
But FOF’s newest director, Bret Jepsen, argues that taking away the taxpayer safety net will effectively eliminate a program that has helped bring jobs and capital into the state without yet spending taxpayer dollars.

“Unlike other government programs, the state of Utah does not provide any upfront funding for this program,” Jepsen writes via e-mail. “Restricting the contingent taxpayer credits would not allow [the FOF] to continue investing and attracting the best [venture-capital and private-equity] managers to the state of Utah.”

Bird, however, believes that the time has come for the fund to pay for its own investments instead of being hedged with taxpayer dollars.

“If they invest another $175 million and lose $100 million, they can’t come back to the citizens of Utah and say, ‘Make us whole,’ ” Bird says. “We’re not going to play that game anymore.”

Twitter: @EricSPeterson

 
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