Pennsylvania entrepreneurs in search of capital can now tap into a $50 million fund from one of the state's largest retirement pension funds.
The investment fund created last week by the State Employees Retirement Fund will be managed by CoreStates Enterprise Capital Group, the venture capital unit of CoreStates Financial Corp., Philadelphia.
The fund will provide mezzanine financing-subordinated debt coupled with options to buy a company's stock-to small businesses. CoreStates declined to disclose how much the bank will contribute to the fund.
Banks' debt and equity investment in small businesses increased in recent years as the stock market soared, raising the potential return from initial public offerings.
Investments in small businesses made through bank venture capital units increased to $1.3 billion at midyear, from $542 million in 1993.
Christine Jones, one of CoreStates Enterprise Capital Group's directors, said the fund will invest in established businesses and shun start-ups and turnarounds.
"We're looking for investment opportunities right now," Ms. Jones said.
The pension fund's trustees approved the creation of the small-business fund last year as part of a program to invest more of its $20 billion of assets in Pennsylvania.
Last year $1.2 billion, or 6.8% of the fund, was invested in Pennsylvania, including more than $900 million in portfolios designed specifically for in-state investment.
"This alliance marks the first time a Pennsylvania pension fund and a commercial bank have joined forces to provide expansion capital," said Nicholas Maiale, chairman of the State Employees Retirement Fund.
CoreStates Enterprise Capital Group manages a nine-year-old, $100 million subordinated debt fund and acts as limited partner in private equity and venture capital deals.
Thomas P. Smyth, vice president and marketing director for Summit Bancorp, said partnerships between pension funds and bank venture capital units have become more common.
"Pension funds, which were traditionally placed in more stable areas, are looking for better returns," Mr. Smyth said.
