CHEYENNE - State Treasurer Cynthia Lummis said the investment of $125 million in state permanent trust fund money in the private equity market will help state businesses while it will also diversify the state's investment portfolio.

"The advantages for Wyoming are substantial," Lummis said in an interview Friday. "This a bold move because it will provide Wyoming businesses access to capital that previously they did not have access to."

The state Board of Loans and Investments voted 3-2 on May 13, to enter a contract to create a limited partnership and set up a new entity, Cheyenne Capital Fund. The general partner is a limited liability company whose principal is John P. Fitzgerald of Denver.

Gov. Dave Freudenthal and Secretary of State Joe Meyer voted against the agreement because of legal questions raised by Attorney General Pat Crank.

In a 21-page opinion to the board, Crank said the proposed agreement is in violation of multiple Wyoming statutes and its terms are detrimental to the state and to the permanent mineral trust funds.

Lummis said some revisions have been made to the contract to address some of the concerns of Crank and the two board members.

"We have been working diligently and in good faith since Tuesday to address his concerns and the board members' concerns," Lummis said. "So I am comfortable with where we are."

She added that the state's financial adviser from R.V. Kuhn, a large investment firm from California, also is comfortable with the agreement.

The revisions, she said, address concerns about indemnity; capping the state's exposure and insures that the state is and will be the majority interest in the fund.

The original contract allowed Fitzgerald to devote a "moderate" amount of time to his law practice. The revision deletes that provision and Fitzgerald will have only a short time to close his private practice, Lummis said.

Crank, meanwhile, said late Friday afternoon that he has not seen the revisions.

On Monday, Crank was out of the office. But his chief deputy, Michael O'Donnell, said he has not received the revisions, according to Freudenthal's press secretary, Lara Azar.

Lummis said she has been advised that the contract is more beneficial to the state than the standard contract for private equity investments.

For the past four years, she said, she has been investigating and researching a way to invest in private equity that would yield benefits to Wyoming without veering from the primary goal of the state's investment portfolio - balancing risk and return.

At the same time, the state's financial adviser from R.V. Kuhn has been educating the board on asset allocation, a strategy that is important with a large institutional portfolio.

To increase diversification, the state's financial adviser recommended that the state consider alternative investments, such as private equity, venture capital, real estate or buyouts.

"We decided that we wanted to enter the alternative asset class," Lummis said.

A number of years ago, the board issued a request for proposal for a "fund of funds" - a private equity fund that, in turn, would invest in other private equity funds.

But the deal fell through when the firms selected, Invesco and Sovereign, merged.

Lummis said she then began working with the Wyoming Business Council and the University of Wyoming on ways to invest in private equity that would have some residual benefits for the state.

As a result of the joint effort, a request for proposal was developed that was broad enough to accept proposals that responded to that specific need for diversified state investments.

The old state board chose Cheyenne Capital Fund, one of three companies that responded.

Cheyenne Capital Fund proposed to invest in private equity funds and to establish a Small Business Investment Company (SBIC).

The contract with Cheyenne Capital Fund was submitted to the Attorney General's office in December or January, she said.

Lummis said she knew the Attorney General's Office would be busy until after the legislative session so she didn't press the issue. But in March she e-mailed Crank and advised that at least one investment opportunity would vanish if the agreement wasn't signed soon.

Lummis said she offered to pay for a private equity outside expert to help examine the contract. The Attorney General's office recommended a firm in Denver that was hired.

Crank said the state board needed to vote again because of the wording of the December motion and Lummis agreed.

The agreement will take politics out of these investment decisions, she said.

Although countless investment opportunities in such things as Wyoming pipelines and agricultural ventures were brought to her office over the last four years, Lummis said her office does not have the expertise to evaluate them.

Lummis acknowledged this would be a high risk investment strategy and that hiring experts in such investments would be essential.

Meanwhile, CIVC, a Chicago-based, large equity fund with experienced managers, agreed to review all Wyoming business plans submitted by Cheyenne Capital Fund.

CIVC also agreed to take University of Wyoming business students as summer interns. she said.

"The Business Council is pleased that this tool now exists," Lummis said.