Credit Suisse, State Investment Funds Parting Ways

10/22/12Follow @XconomyDET

Back in July, Credit Suisse, the global banking giant, announced that is was selling off its Customized Fund Investment Group (CFIG). Since the CFIG administers more than than $500 million in capital spread across the state government’s various investment funds—one of the largest pools of private equity capital in Michigan—there are potentially big ramifications if the CFIG is sold. Now, it appears a deal might be near, though nobody is willing to go on the record with details.

So what will happen to the funds under the CFIG’s direction, including the $102 million 21st Century Jobs Fund, the $95 million Venture Michigan Fund, the $120 millionVenture Michigan Fund II, the $185 million InvestMichigan Growth Capital Fund, and the $130 million InvestMichigan Mezzanine Fund?

Sean O’Donnell, vice president of CFIG’s Michigan operations, declined to comment on the reason why Credit Suisse is divesting itself of the CFIG, but the lender told BusinessWeek that the units for sale had “limited synergies” with its other asset-management units.

What O’Donnell would say is that no matter who the new buyer is, the sale will not result in a personnel change in terms of day-to-day management of the funds. Mike Flanagan, manager of equity capital programs at the Michigan Economic Development Corporation (MEDC), echoed that statement, telling Xconomy that “the entire practice is moving wholesale to whoever buys it—the entire Michigan team will be the same.”

O’Donnell declined to speculate on who the new buyer might be, and Flanagan said there are a few leading candidates, but he said that no decision has been made. With such a large amount of state capital at play—the funds were established in 2005 with money Michigan won in the national lawsuit against tobacco companies—it’s a decision that could have a significant impact on the success of the funds, which all parties agree have prospered under Credit Suisse’s management.

In fact, Xconomy published an article detailing Credit Suisse’s pivotal role in strengthening Michigan’s entrepreneurial ecosystem just a few weeks before the July announcement that the CFIG would be sold. At the time, the MEDC’s Paul Brown said Credit Suisse’s presence in the funds’ deals lent confidence to coastal investors, and said Credit Suisse was doing more to beef up the state’s entrepreneurial ecosystem than anyone except state government. If that’s true, losing its expertise could be a blow to Michigan’s efforts to cultivate a strong venture capital and entrepreneurial community.

At the moment, Flanagan and the MEDC don’t seem worried. “As far as we’re concerned, the CFIG is an umbrella unit that is able to detach and function just as well [after a new buyer],” Flanagan said. “The announcement hasn’t affected anything. We’ve done more good work with that team in the past six months than ever, and I’m not just saying that.”

Flanagan added that O’Donnell and his team are almost finished vetting applicants for the new Pure Michigan Venture Development Fund, a $9 million effort to create four new VC funds in the state. Flanagan said the task was completed in half the time expected, and he anticipates that the MEDC will be able to announce the finalists in December.

Sarah Schmid is the editor of Xconomy Detroit. You can reach her at 313-570-9823 or sschmid@xconomy.com. Follow @XconomyDET

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