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With foreign fund, Burrill says $1B Elk Run fund at ‘goal line’

The man responsible for finding cash to support the Elk Run BioBusiness Park says he’s in final negotiations with a foreign investor for the long-promised $1 billion investment fund. In an interview with MedCity News, Steven Burrill says he is working out the details of a limited partnership agreement with a sovereign wealth fund. He hopes to close the deal by the end of the month.

The man responsible for finding cash to support the Elk Run BioBusiness Park says he’s in final negotiations with a foreign investor for the long-promised $1 billion investment fund.

In an interview with MedCity News, Steven Burrill says he is working out the details of a limited partnership agreement with a sovereign wealth fund. He hopes to close the deal by the end of the month.

“We’re at the goal line,” Burrill said by phone in Asia. “We hope to have signed documents in 30 days.”

Burrill is known to make big statements that don’t always pan out. And the deal, which has been frequently delayed, could still fall apart.

But there are several reasons why a foreign-based sovereign fund makes sense, starting with the most important one: the funds have money. Lots of it.

Several countries, including those in the oil-rich Middle East and export powerhouse China, have accumulated huge cash reserves and want to generate higher returns by purchasing riskier assets in the United States.

“Sovereign wealth funds, while not a new phenomenon, are also beginning to play an increasingly important role in international capital flows,” according to a report by the International Trade Administration of the U.S. Commerce Department. “Due to substantial trade surpluses, some governments have accumulated significant savings and are now searching for opportunities to earn a higher rate of return.”

Burrill did not name the sovereign fund, but two likely sources stand out: the United Arab Emirates and China — Burrill operates offices in Dubai and Shanghai.

The UAE’s sovereign fund, the Abu Dhabi Investment Authority, boasts an estimated $875 billion in assets and is the largest in the world. The fund has purchased large stakes in everything from Citibank and Hyatt Hotels to Gatwick Airport in London.

With its sovereign fund carrying an estimated $300 billion in reserves, China also has embarked on a global buying spree. In 2008 alone, the country spent about $40 billion in foreign direct investment (FDI).

Chinese companies are becoming increasingly interested in the Midwest. Last year, Beijing West Heavy Industries paid $100 million to purchase the brakes and suspension business of Delphi Corp. in Detroit. China SINB Group, a large diversified industrial and real estate holding company, purchased 54 acres of land in Wisconsin — its first major development project in North America.

Meanwhile in the United States, new venture capital money has been in short supply. Thirty-eight U.S. venture capital funds raised $1.9 billion in the second quarter of 2010, a 49 percent decline from the previous quarter and the lowest dollar amount in seven years, according to Thomson Reuters and the National Venture Capital Association.

Early stage capital is virtually non-existent in Minnesota. Last week, Affinity Capital Management and Triathlon Medical Ventures confirmed they were suspending efforts to create a $10 million early stage seed fund in the state.

Burrill, himself, had hoped to attract local investors to Elk Run. But despite several trips to the state, he has largely come up empty.

Landing one big investor would make Burrill’s life easier. His original plan called for a hybrid fund that would spend $500 million to purchase $20 million equity stakes in each of 15-to-25 companies ranging from startups to publicly traded companies that would move to the bioscience center.

The remaining $500 million would go toward the rest of developer Tower Investments’ real estate projects on Elk Run, including a health living center, offices, shops and residential homes.

Experts said the fund’s structure would be too complicated for investors who would not necessarily want their money spent on two unrelated assets.

During his interview, Burrill sounded less committed to the 50/50 mix. The sovereign fund wants to invest $1 billion in all of Elk Run, he said, though the initial flow of money would go toward the BioBusiness Park, the first stage of Tower’s massive development on Elk Run.

Construction on the park would begin in October.