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home : most recent : statewide implications December 11, 2018

4/16/2018 7:15:00 PM
New Indiana investment fund aims to be capital resource for entrepreneurs

Dan Carden, Times of Northwest Indiana

INDIANAPOLIS — The Hoosier State isn't waiting for the 21st century economy just to come to Indiana, it's now employing a strategic investment program to support entrepreneurship, launch careers and the next generation of commerce.

Standing under a basketball hoop in the gym of a 19th century Indianapolis high school turned tech company hub, Gov. Eric Holcomb last week declared the Next Level Indiana Trust Fund open for business.

The $250 million fund takes a portion of the money the state set aside from the $3.8 billion lease of the Indiana Toll Road and makes it available to experienced money mangers looking to support late-stage new businesses with Indiana connections that need added investment to continue growing.

"We know that additional capital is part of this equation, and additional expertise is really going to be that factor that bumps us way out from the rest of the pack and truly takes Indiana to the next level," Holcomb said.

The Republican believes that investing in promising new economy businesses, as opposed to comparatively safer government or corporate debt, will more effectively grow Indiana's economy in the long run, and also encourage investment firms to look to Indiana as a place where they too want to deploy their resources.

"To me this symbolizes truly a win-win-win day for Indiana," Holcomb said. "Certainly it's a win for the creator class, it's a win for the investor class, and because of that it's a big, big win for Indiana."

Toll Road origins

The Next Level Indiana Trust Fund was established last year by House Enrolled Act 1001 with a goal of boosting the state's investment returns from its remaining Toll Road lease proceeds.

In 2006, when Indiana leased the 156-mile Toll Road that runs through Northwest Indiana and into Illinois and Ohio, it set aside $500 million in the Next Generation Trust Fund as a way to generate ongoing, additional road construction revenue for decades to come.

But state law required the Next Generation Trust Fund be invested in products with limited risk in order to preserve the principal. In 2016, the fund generated just $14.7 million in interest income, according to state records.

As a result, Hoosier lawmakers in 2017 chose to increase fuel taxes by 10 cents per gallon, hike vehicle registration fees and open the door to highway tolling to produce the more than $1 billion a year needed to rebuild and maintain state and local roads and bridges.

They also decided to move the money in the Next Generation Trust Fund into the newly created Next Level Indiana Trust Fund, and allow half the account, or $250 million, be used to generate "risk-appropriate returns" from capital gains earned mostly by investments in new and growing Indiana companies.

The other half of the fund must continue to primarily be invested in products with limited downside risk, similar to money invested by the Indiana Public Retirement System.

Investment proceeds from both halves of the fund are required to be transferred to the state in 2021, and every five years thereafter, to be used for transportation infrastructure projects.

A five-member board, which includes three state officials, sets the fund's investment policies. However, the fund technically operates as a charitable trust separate from the state, since the Indiana Constitution prohibits the state from becoming a stockholder in any corporation or association.

A fund of funds

In December, the Next Level Indiana Trust Fund Investment Board selected 50 South Capital Advisors LLC, a subsidiary of Chicago's Northern Trust Corp., to manage the fund.

Bob Morgan, managing director at 50 South Capital, said the Next Level fund will meet its dual goals of generating investment returns for the state and supporting Hoosier companies and jobs through a "fund of funds" approach, rather than direct investment in any particular company.

"We want to make sure that we're providing capital to the top firms in the state, and then connecting the entrepreneurs so they have a source to turn to to raise capital for their businesses," Morgan said. 

Trey Hart, 50 South Capital senior vice president, said the plan is "to invest slowly" by putting about $50 million a year in each of the next five years with money managers who also are willing to risk their own capital alongside the Next Level funds.

"We think the largest percentage of the portfolio is going to be invested in managers that are physically located here, that will be most likely to invest in Indiana companies," Hart said. "But the portfolio will be broadly diversified by stage, sector and strategy."

Hart explained that ultimately 50 South Capital is looking to invest in 25 to 30 funds over the next five years that will support entrepreneurs throughout the state running late-stage new businesses where the fund is likely to get greater performance with less risk.

"Our goal is to come in and be a partner. To be a part of what is already happening," Hart said.

Morgan pointed out that a similar-sized program managed by 50 South Capital for the Illinois state treasurer has produced a 12.3 percent net return and led to the creation of 6,800 Illinois jobs over 12 years.

"These programs do work and they work well," Morgan said. "The key to making them work is the transparency, the communication, all of the constituents of the program working closely together, getting the right people involved in these programs, and communicating and working toward a common goal."  

"I cannot say how pleased I am with the way that process has worked here in Indiana."

Access to capital

Hoosier business owners and investment funds also are excited by the opportunities they believe the Next Level fund will unlock for Indiana.

Haley Altman, a former venture capital attorney and founder of Doxly, a maker of legal transaction management software, said she's seen numerous Indiana entrepreneurs struggle to move their businesses forward due to a lack of available resources.

"When I was in California, you could walk out the door and probably trip over six venture capitalists on your way to get coffee," Altman said. "Here the access to capital is a little bit different."

"I love the idea that more people can start their business knowing that they'll have the support and the access to capital."

Tim Kopp, a partner at Hyde Park Venture Partners, which has made 10 investments in Indiana start-up companies, said unleashing $250 million on Hoosier entrepreneurs makes this a "momentous time for Indiana and for Indiana tech."

"I think we're going to look back on this fund formation ... as one of the most important things that has happened in our ecosystem in many, many years," Kopp said.

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Editor, John C. DePrez Jr.; Executive Editor, Carol Rogers; Publishers: IBRC and IAR

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