MADISON (WKOW) -- One of the two firms selected to manage Wisconsin's $25 million venture capital fund manages a similar program in New Mexico, which has lost money, and was put under increased oversight by state officials there for questionable investments.
Sun Mountain Capital, based in Sante Fe, New Mexico, joined Kegonsa Capital Partners of Fitchburg to form Sun Mountain Kegonsa. The Wisconsin Department of Administration announced last Friday that it has selected Sun Mountain Kegonsa to manage the state's new venture capital fund, which will provide money to start-up businesses and entrepreneurs in Wisconsin.
Venture capital expert Tom Still, President of the Wisconsin Technology Council, speaks highly of Sun Mountain and its managing partner Brian Birk, who is a Wisconsin native.
"Sun Mountain has done fund to funds in other states, in fact, in another country, Mexico," said Still.
But its in New Mexico where Sun Mountain Capital has had some problems managing a similar fund.
Sun Mountain Capital was established in 2006 and has managed the New Mexico Private Equity Investment Program since that time. That program invests state money in funds that in turn provide dollars to New Mexico-based companies.
The most recent financial report prepared by Sun Mountain Capital for the New Mexico State Investment Council (SIC) shows that program, worth $307 million as of June 2013, has operated at a loss of -2.3 percent since its inception in 1993.
The report notes the program's performance has improved recently, producing $6.5 million in returns since 2004. But since that time, only 40 percent of the funds in the program are above the median return rate for similar venture capital funds nationwide.
That report also shows 19 of the program's 28 funds have lost money since its inception. Of those funds, eight have been liquidated, while two others are in the process of being liquidated. That leaves 18 remaining funds in the program, 11 of which are currently operating at a loss.
"Its my understanding that Sun Mountain was brought on to help unravel some of the earlier issues, the first 13 years of that fund and to try to help clean it up," said Still. "That can be a long process in the venture capital world, though."
Minutes from a SIC meeting in April of 2012, show the council voted to establish more oversight of Sun Mountain Capital in an effort to increase the transparency with which the company makes investments.
The increased oversight of Sun Mountain came after the company invested state money in a company called Growstone — a spin-off of the New Mexico company Earthstone — without giving SIC the proper notice. SIC also learned that Brian Birk, Sun Mountain Capital's Managing Partner, sat on Growstone's Board of Directors.
The State Investment Council considered stripping Sun Mountain of its contract altogether at the time, but opted instead for the increased oversight of the program.
"We'll be looking closely at it, as will others," said Rep. Fred Clark (D-Barbaoo), who helped write the venture capital fund legislation.
Rep. Clark says he hasn't seen anything yet that would be a dealbreaker.
"We've got a lot of oversight built into the process and, if there's a true problem with this particular firm, I think we're gonna find that out very soon," said Clark.
The Department of Administration still has to work out a contract with Sun Mountain Capital, which must then be approved by the Legislative Audit Bureau and the Joint Finance Committee.
When asked about the selection of Sun Mountain to manage Wisconsin's fund, DOA Spokesperson Stephanie Marquis provided 27 News with a statement, which reads, "As part of the normal vetting process, multiple states were called to inquire about Sun Mountain's investment performance. All of the states contacted were happy with the fund management by the company."
Marquis states that DOA also received bids to manage the venture capital fund from Customized Fund Investment Group of Credit Suisse Asset Management, LLC, and Community Development Venture Capital Alliance.
Capitol Bureau Chief Greg Neumann will have more on this story on 27 News at 5 and 6.
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