Utah FoF to raise second fund

Backed by tax credits from the state and fueled by a mission to boost capital available to in-state entrepreneurs, Utah Fund of Funds’ second vehicle is poised to invest a minimum of $100 million to buyout and venture capital funds. The fund of funds is also searching for a non-discretionary adviser to help identify and recommend investment opportunities.

Deutsche Bank invested $100 million for the program’s first vehicle, and a host of others, including Deutsche Bank, Merrill Lynch & Co. and Morgan Stanley, are vying to commit at least that much to Utah Fund of Funds II, says Managing Director Jeremy Nielson.

The fund is different from conventional funds of funds in that Investors provide lines of credit with which to make fund commitments. In a move that aims to reduce the risk for the fund’s backers, the state provides refundable, transferable tax credits. The Utah Legislature is considering a $200 million increase in the tax credits, suggesting that fund II could eventually reach $300 million.

Created in 2003 by the Utah Legislature, the Utah Fund of Funds acts as an economic development program designed to back private equity funds that will, in turn, invest in businesses in the Beehive State, though the FoF is not limited to backing Utah-based buyout or venture capital funds. But general partners are required to visit the state frequently, attend entrepreneur-focused forums and conferences, and shop local deal flow.

About 80% of fund I was committed to venture firms with the remaining 20% going to buyout shops, a breakdown that will be repeated with Fund II, Nielson says. However, early distributions will be reinvested exclusively in buyout shops, amounting to roughly $10 million over the next six years, he estimates. That pattern will also be repeated with the second vehicle.

So far, fund I has backed 18 private equity funds. The vehicle’s largest commitment was $8 million, and the average investment was $5 million. Commitments were made to Apax Partners, Fenway Partners, Sorensen Capital, Foundry Group, Frazier Healthcare Ventures and Shasta Ventures, as well as growth equity funds managed by Cross Creek Capital and Rosewood Capital.

Fort Washington Capital Partners served as investment advisor for fund I and has responded to the request for proposals to work on fund II. —Joshua Payne