State fund begins to pay off

The state and three public employee pension funds have earned returns of $685,000 from three successful investments by the Maryland Venture Capital Trust, a fund set up to encourage investment in Maryland start-up companies, the trust's board reported yesterday.

But the board's accountant, Jeffrey D. Hamet of Arthur Andersen LLP, reported yesterday that there are more write-downs in the portfolio than there are investments that have increased in value.


John C. Weiss III, the original managing director of the trust and now a consultant to the board, said the numbers looked good for a venture capital program in its third year of making investments.

In his first annual report to Gov. Parris N. Glendening, Harvey D. Kushner, the trust's chairman, said all $19.1 million managed by the trust has been committed to eight venture capital limited partnerships. The individual partnerships decide which companies will receive investment money.


Through the end of the first quarter of this year, the fund had actually paid out $8.9 million to the partnerships, which had made 23 investments totaling $24.5 million in Maryland companies, the report said.

Mr. Weiss, who left as managing director in spring 1994 and who has not been replaced, said this "multiplier effect" indicated that the trust's investments are having success in attracting co-investors to Maryland.

Whether the trust will meet its goal of providing a competitive rate of return to its investors is too early to tell, board members said.

"It's too early to say we're going to get 20 percent or 10 percent or 30 percent," said Mr. Kushner.

The trust's net loss for 1994 was $152,961, but that is not unusualfor venture capital investments in their early stages.

For the quarter that ended March 31, the trust took in net income of $56,100, but it was unclear whether that represented a turning of the corner or merely the cashing-out of a few winning investments.

The two largest investors in the trust are the state of Maryland, which kicked in $2 million to get the fund started, and the Maryland State Retirement and Pension Systems, which agreed to contribute $15 million.

The city employees' pension fund and city police pension fund have agreed to invest $840,000 and $1.26 million respectively.


Such investments by pension funds have raised concerns because of the inherent risks of venture capital investing, which traditionally pro

vides financing to companies during their vulnerable early stages.

Under their agreements with the trust, each of the limited partnerships has agreed to make its "best effort" to invest at least as much money as it receives from the trust in Maryland companies.

Mr. Kushner said seven of the partnerships had made investments in Maryland.

But he expressed dissatisfaction with the eighth, TDH III L.P. of Rosemont, Pa., which has not made a

Maryland investment in spite of a $2 million commitment from the trust.


Mr. Kushner said TDH "has not been aggressively prospecting anyone."

On the positive side, Calvert Social Ventures became the first investment of the trust to provide a return when it distributed $27,880 to the fund in 1994.

Catalyst Ventures L.P. paid out $329,845 to the trust in January, while Oxford Bioscience Partners made two distributions totaling $327,708.

Mr. Kushner said the trust had earned especially good returns as a result of Oxford's investment in the successful initial public offering of Human Genome Sciences Inc., a Rockville-based biotechnology company. That investment alone brought the trust $222,771, the report said.