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North America: April 2003

Disclosure debate still raging, Q1 venture investment figures worst for five years, US private equity returns suffering, Accel cuts fund again…

World events hit US venture capital hard in 2003; investment slowest for five years
Geopolitical uncertainty has hit the US venture capital industry hard in 2003 with quarterly investment levels dropping below $4bn for the first time in five years, according to the Ernst & Young/Venture One Venture Capital Survey. Just $3.4bn was invested in 404 deals in the first quarter of 2003, a decline of 21 per cent and 12 per cent respectively. The average value of an investment fell from $6.6bn in the fourth quarter of 2002 to $6m so far this year, reflecting increased risk aversion in the industry and softening valuations. Whilst most sectors saw declines in investment levels some isolated IT segments actually saw significant increases in investor activity. Information services experienced a 70 per cent jump in the first quarter to $188m. Investment in semiconductors increased by 38 per cent and was bolstered by the quarter's largest deal, a $52m later financing round completed by Matrix Semiconductor.
AltAssets 28.4.03

University of California pension fund comes under pressure to publish returns data
The University of California has become the latest US public pension fund to be sued for failing to make public details of its private equity returns. The San José Mercury News and a union of 18,000 university employees have filed the suit contending that the university is subject to disclosure laws because it receives money from the state. The action seeks to ensure that the pension fund turns over its private equity funds' returns as well as records of closed sessions over the last three years. These include sessions held in 2000 when it adopted a new asset allocation plan and hired an outside advisor, Wiltshire Associates, and in 2002 when it fired its entire equity investment staff and decided to hand out $15bn in funds to multiple outside managers. Lawsuits such as this are having the effect of forcing major investors to reveal performance information that has never previously been available. The California Public Employees' Retirement System, for example, adopted a comprehensive private equity performance disclosure policy last month.

AltAssets 2.4.03

Florida and Illinois attempt to block disclosure of terms and conditions
Florida and Illinois are attempting to block laws forcing them to disclose some of their private equity partnership information. Senators in the two states have put forward proposals for legislation exempting public pension plans from having to provide information to the public about fund terms and conditions and portfolio companies. The proposals would not block the disclosure of fund performance. The rationale for the legislation appears to be a fear that funds able to choose their investors avoid public pension plans that are subject to freedom of information laws and that disclosing portfolio company data could harm pension fund investments.
The Private Equity Analyst April 2003

San Francisco releases fund data to San Jose Mercury News
The San Francisco City & County Employees' Retirement plan has passed its fund performance data to the San Jose Mercury News, following an open records request from one of its journalists. Unlike other pension plans that have received these requests, San Francisco has not released the information to the wider public.
The Private Equity Analyst April 2003

US Blackstone forms healthcare group
New York-based Blackstone Group has hired three healthcare industry veterans to form Blackstone Healthcare Partners, which will be the focal point of Blackstone's pharmaceutical and medical products investments. Blackstone has recruited Lodewijk de Vink, former chairman, president and chief executive of Warner-Lambert, Aleksander Erdeljan, former chairman, president and chief executive officer of RP Scherer, and Doug Rogers, a managing director at Donaldson, Lufkin & Jenrette's healthcare merchant banking group.
AltAssets 22.4.03

CalPERS commits to WL Ross Japan fund
CalPERS has announced that it is to commit $200m to a WL Ross & Co Japanese turnaround fund. It will also take a 20 per cent stake in the firm's management company. The fund is targeting $1bn and will invest in small distressed Japanese companies. The arrangement will give CalPERS a larger share of any profits the fund makes. The pension plan has previously taken a management company stake with a number of firms including The Carlyle Group, Audax Group and Thomas Weisel Partners.
PrivateEquityCentral.net 14.4.03

New Mexico to see boost in VC funds available
The $11bn New Mexico State Investment Council has decided to double its in-state fund of funds programme and is pumping more than $100m into local venture capital firms. The decision comes in the wake of similar announcements by state pension funds to allocate part of their private equity investments to general partners that invest in the local economy. Other states to have formed in-state funds of funds include Ohio, Illinois, Iowa, Ohio and Utah.
The Private Equity Analyst April 2003

Latest figures show US private equity returns still suffering
US private equity returns are still mired deeply in negative territory with little sign of a significant turnaround on the horizon. The latest figures from Venture Economics and the National Venture Capital Association showed the eighth consecutive quarter of sub-zero annual returns. The figures for the quarter ending December 31 2002 showed a marginal improvement in buy-out returns on the preceding quarter but a continuing deterioration in venture returns. One-year returns for all private equity funds measured negative 11 per cent in the latest period, compared with negative 12.3 per cent in the preceding quarter. Venture returns worsened to an annual negative 23.3 per cent from 22.3 per cent, while buy-out returns edged up to negative 5.5 per cent from negative 8.2 per cent. All sectors of the asset class with the exception of mezzanine funds also showed negative three-year returns, highlighting the depth of the ongoing downturn. Longer-term returns are also beginning to pale although Venture Economics said private equity's long-term performance continues to outstrip other asset classes.
AltAssets 23.4.03

Missouri abandons private equity plans
The Missouri State Employees' Retirement System has shelved its plans for a $250m private equity programme. The pension plan had been looking for an advisor to help them with their investments, but has now called off the search. It reportedly has no intention of resuming it.
Private Equity Week 28.4.03

US Accel slashes venture fund for the second time
California-based venture capital firm Accel Partners has reduced the size of its Fund VIII for the second time. Accel plans to reduce the fund, which closed with commitments of $1.4bn in 2000, by an additional 29 per cent to $680m. Accel initially cut the fund by 32 per cent to $952m in May 2002 after investors rejected a proposal to cut the fund in half but keep the remaining $700m for a future fund. Accel conceded and agreed to free investors from their outstanding commitments and included a refund for back-dated management fees. Since the beginning of last year, at least 27 venture capital firms, including Charles River Ventures, Walden International, Sevin Rosen Funds, Kleiner Perkins Caufield & Byers, and Viventures have downsized their funds by a combined total of around $5bn. Four firms, Mohr, Davidow Ventures, Atlas Venture, Redpoint Ventures and now Accel Partners have sliced their funds twice.
AltAssets 9.4.03

Icon Ventures formed by three VCs
Three venture capitalists have joined forces to launch a new $200m fund, Icon Ventures, based in Menlo Park. Joseph Horowitz, Michael Levinthal and Thomas Newby, formerly of US Venture Partners, Mayfield and Technology Crossover Ventures respectively, have begun raising a debut fund. Icon will target companies specialising in enterprise software, communications, internet infrastructure and semiconductors, making investments of between $3m and $6m.
The Private Equity Analyst April 2003

Crest Communications ends venture programme
New York-based advisors and private equity house Crest Communications has decided to stop making new investments. The firm, which has $175m under management, has reserved some capital for follow-on investments, but will focus in future on its M&A services and private equity placements for middle-market companies. Its portfolio companies include Jareva Technologies and TeraNex.
VentureWire 29.4.03