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North America: July 2003

CalPERS reports private equity losses, New York plans to up allocations, Carlyle abandons plans for secondaries fund, Oak and Worldview slash management fees, US sees uptick in investment activity for third quarter…

CalPERS private equity investments post 10.6 per cent loss in last 12 months
The California Public Employees' Retirement System (CalPERS) has reported a 10.6 per cent loss on its private equity investments in the year to the end of June. The fund did, however, receive $500m cash returns on its private equity and venture capital investments for the period. The pension fund's return on overall investments was 3.9 per cent, generating $4.8bn in profit after benefit payments and contributions. CalPERS is the largest public pension fund in the US and is the world's largest investor in private equity. Private equity investments currently constitute five per cent of CalPERS' assets but the company announced its intention to increase this allocation to seven per cent at the end of last year.
AltAssets 30.7.03

State Street and ABP acquire majority interest in Shott Capital Management
State Street Global Alliance and giant Dutch pension fund ABP have signed a deal to acquire a majority interest in the assets of Shott Capital Management. Shott specialises in private equity fund investments and in managing distributions for investors.
Private Equity Week 16.7.03

US secondaries specialist Lexington Partners closes fund on $2bn
US-based secondaries specialist Lexington Partners has finally closed its fifth fund with $2bn in commitments. The firm started marketing the fund in 2001 and has fallen short of its original target but has still succeeded in raising the second largest secondaries fund on record. The firm said it had reduced its target because price discounts on the sort of assets it buys are much steeper now than when it set out fundraising and it no longer needed such a big fund. UK-based specialist Coller Capital closed its record-breaking $2.5bn in November last year.
AltAssets 14.7.03

New York pension schemes to up private equity allocations
Four New York municipal pension schemes are set to increase their investments in private equity following an asset allocation study. The New York City Employees' Retirement System, the Teachers' Retirement System, the Police Pension Fund and the Fire Department Pension Fund are all in the process of reviewing their asset allocations at the end of which, they are expected to decide on a ‘significant increase' in target allocations. Together, the plans manage $75bn.
PrivateEquityCentral 23.7.03

US Rustic Partners announces first close at $130m and hires new partner
US Rustic Canyon Partners has reached a first close of $130m with its venture capital fund licensed by the US Small Business Association. The firm has also announced the recruitment of Jon Staenberg as partner. Staenberg is the founder of venture capital firm Staenberg Venture Funds. He previously served as vice president of sales and marketing at virtual I-O and spent six years at Microsoft in marketing. The firm expects to hold a final close for its latest fund with $175m in the third quarter and will make approximately five deals out of the fund this year.
VentureWire 22.7.03

Global Asset Capital, Hamilton Lane finalise takeover of Viventures
US private equity firms Global Asset Capital and Hamilton Lane have finalised their takeover of French venture firm Viventures, an offshoot of the debt-troubled Vivendi. Terms of the deal were not revealed but it includes all of the firm's 54 portfolio companies and the $400m it has under management. GAC and Hamilton Lane said they had been attracted to the business because of their optimism about the European private equity industry and France in particular. Viventures will be the platform for the development of their ambitions in the region, they said. The wholesale acquisition of a portfolio of venture investments and its management team is still a fairly rare event in the private equity industry. Viventures, however, has had particular problems, stemming from its relationship with Vivendi and the state of the telecoms and technology markets in Europe.
AltAssets 17.7.03

Carlyle shelves plans for secondaries fund
Carlyle Asset Management, a division of The Carlyle Group, has abandoned plans for a $400m secondaries fund because of a lack of interest among limited partners. Managing directors Ted Hobart, Jeffrey D Moelis and vice president David Kupperma, hired in 2002 to help raise the capital, will now build a small portfolio of secondary deals using Carlyle's money. The group has also agreed to sell its stake in its asset management subsidiary to a group of employees, including Afsaneh Mashayeki Beschloss, CEO of Carlyle Asset Management. The asset management division was established in 2001 to manage private equity and hedge funds of funds and secondary funds.
The Private Equity Analyst July 2003

US venture capital investments rise for the first time in two years
Venture capital investments in the US have increased for the first time in the post-bubble era, according to the PricewaterhouseCoopers', Thomson Venture Economics' and NVCA MoneyTree survey. Investments in the second quarter of 2003 totalled $4.3bn, up marginally from $4bn in the previous quarter. A total of 669 entrepreneurial companies received funding in the second quarter compared with 647 companies in the first quarter of the year. Nearly all of the leading industry categories experienced increases in investment levels. Software remained the most popular sector attracting $864m, an increase of seven per cent from the previous quarter. Biotechnology was second with a 14 per cent increase to $639m. After hitting an eight-year low in the first quarter of 2003, the number of companies receiving venture capital for the first time also increased slightly this quarter to 153 compared with 138.
AltAssets 29.7.03

Healthcare helps drive modest rise in US Q2 venture investing…
A jump in healthcare financing in the second quarter helped produce the first significant increase in US venture investing for nearly three years, according to new figures from Ernst and Young/VentureOne. The second quarter total of $4bn was a marked improvement on the $3.5bn in the first but still a long way short of the $5.7bn invested in the same period last year. There were 442 transactions in the second quarter, compared with 424 in the first and 594 in the second quarter of 2002. The healthcare sector recorded $1.2bn of investment in the second quarter, compared with $761m in the first. VentureOne said there was a big boost from the biopharmaceuticals and medical devices sectors, both of which were underpinned by solid and irreversible fundamentals. Venture investment in information technology in the second quarter remained broadly flat at $2.3bn on the previous quarter but was still lower than the $2.9bn invested in the same period last year. All the sub-sectors recorded modest falls except for the software sector, which saw a rise to $1bn from $814m in the first quarter.
AltAssets 28.7.03

…but returns still down
US private equity returns remain under pressure with little sign of a turnaround in fortunes, according to new figures released by Venture Economics and the NVCA. One-year returns fell by 18.5 per cent in the first quarter, the ninth consecutive quarterly decline, and a significant deterioration on the previous quarter. Venture capital funds were the worst affected with a 29.1 per cent loss, reflecting lower valuations and the difficulties faced by underlying portfolio companies in generating revenue and creating value. The figures were even more dispiriting than the 22 per cent one-year loss posted in the fourth quarter of 2002, suggesting the market may not yet have bottomed out. One-year buy-out returns recorded a 13.4 per cent loss, compared with a loss of 5.5 per cent in the fourth quarter. The best sub-sectoral performance came from mezzanine funds but even these have now slipped into negative territory. One-year returns were negative two per cent in the first quarter. Private equity three-year returns were negative 10.2 per cent in the first quarter. Venture returns were negative 17.1 per cent and buy-out returns negative 7.7 per cent.
AltAssets 23.7.03

MassPRIM loses battle to keep partnership data private
The Massachusetts Pensions Reserves Investment Management Board must disclose its private equity performance data, partnership terms and, in one instance, portfolio company data, following a two-year legal battle to keep it private. The board has been ordered by the Massachusetts state attorney general to comply with two open records requests. MassPRIM had previously refused to do so, claiming that the information included ‘trade secrets' and arguing that disclosing it would harm the board's ability to access fund managers. The board is now attempting to reach a compromise with the attorney general that would see only some of the data released.
The Private Equity Analyst July 2003

C&A owners to create E650m buy-out fund
The Brenninkmeijer family, the owners of European clothing retailer C&A group, is to create a E650m buy-out fund. The launch of the new fund represents an affirmation of the family's already considerable commitment to the private equity asset class. The Brenninkmeijer family's Bregal Holdings has already committed E650m to UK-based Englefield Capital earlier this year. Bregal's chief financial officer Edwin Neirs has revealed that the family also plans to hire a manager to invest some of the family's money in other private equity firms.
AltAssets 10.7.03

Philadelphia opts for Franklin Park
The City of Philadelphia Board of Pensions and Retirement has replaced Hamilton Lane as its private equity investment advisor. The board has opted for Franklin Park, which has recently changed its name from Franklin Investment Advisors. The firm was formed earlier this year by six ex-Hamilton Lane employees.
Private Equity Week 15.7.03

Oak cuts management fee on $1.bn venture fund
Connecticut-based Oak Investment Partners has reportedly agreed to cut the management fee on its $1.bn Fund X. Launched in September 2000 and closed in March 2001, Fund X is the second largest venture capital fund ever raised. Until the agreement, it had been charging 2.5 per cent, thereby generating an annual revenue of $40m a year. From the end of this month, the fund cut its management fee by a quarter to charge 1.875 per cent.
PrivateEquityCentral 21.7.03

Capital Resource launches $400m mezz fund
Boston-based mezzanine firm Capital Resource Partners is seeking to raise $400m for its fifth partnership. Its latest fund will invest in small to mid-sized companies in the US. The firm joins a host of other mezzanine-type funds raising in the US, including Kelso & Co and Veronis Suhler Stevenson, which together are seeking a total of $3bn from investors.
The Private Equity Analyst July 2004

US-based ITU Ventures closes third fund on $36m
US-based ITU Ventures has closed its third fund on $36m. The new fund will continue the firm's strategy of partnering with universities to develop early-stage technology. Investors in the fund include Colorado PERA, New Mexico State Investment Council, Boeing and Storagetek. ITU Ventures closed its first fund in 2000 on $35.5m and its second fund on $11m. The firm has already made three investments from its latest fund. In April, the firm sold portfolio company Eizel Technologies, a provider of content access solutions, to Nokia in Finland for $21m.
AltAssets 10.7.03

Worldview proposes fund cut and reduction of management fees
Palo Alto-based Worldview Technology Partners looks set to reduce the size of one of its funds and the management fees on two of its partnerships. The firm is planning to reduce its 2001 fund for the second time down to $600m from its original size of $1bn. It is also mulling cutting the management fees on its second and third funds, raised in 1998 and 1999 respectively. The reductions would ultimately increase the funds' net IRRs.
The Private Equity Analyst July 2003

US venture capital investment continues to fall in second quarter
US venture capital investment continued to fall in the second quarter of 2003, according to new figures released by VentureWire. A total of 355 private companies based in the US raised $3.3bn in venture capital over the past three months, compared with 447 financings at a total value of $5.9bn in the first quarter of the year. Investment levels in the first quarter of 2003 also fell well short of the same period last year when 582 companies raised a combined total of $5.9bn. The most active investor in the second quarter was Austin Ventures, which announced 11 completed deals. Draper Fisher Jurvetson, Advanced Technology Ventures and Intel Capital followed up with nine deals each.
VentureWire 2.7.03

No sign of Q2 recovery in US venture-backed IPO market
The market for venture capital-backed initial public offerings remained dismally weak in the second quarter of 2003. Just two venture-financed start-ups completed flotations in the past three months, according to a report from the National Venture Capital Association (NVCA) and Thomson Venture Economics. The two IPOs had a combined value of $164m. This is compared to the 82 venture backed flotations worth $8.15bn at the peak of the technology bubble in the fourth quarter of 1999.
AltAssets 2.7.03

Bear Stearns to launch fund with Rudolph Giuliani
US Bear Stearns Merchant Banking, the private equity unit of financial giant Bear Stearns, is to join forces with former New-York mayor Rudolph Giuliani. The merchant bank's joint venture with Giuliani Capital Partners will invest $300m of Bear Stearns' recent $1.5bn fund in private equity opportunities in the security and public-safety sectors. The new fund is already examining companies that have developed identification technologies and may invest in firms working on ways to identify biological and chemical agents.
AltAssets 31.7.03

Ontario Pension Services plans Canadian start-up fund
Ontario Municipal Employees Retirement System (OMERS) is planning to raise a fund to invest foreign capital into Canadian start-ups. OMERS is targeting $220m from limited partners outside Canada, specifically US investors who have overlooked the Canadian private equity market in the past.
Private Equity Week 14.7.03

Edison Venture Fund closes on $142m
New Jersey-based Edison Venture Fund has closed its fifth partnership on $142m, an increase of 23 per cent on Edison IV. The latest fund will invest in expansion stage companies in the mid-Atlantic region with revenues of between $5m and $20m. Investors in the fund incluse Commerce Bank, JP Morgan Chase, Penn Mutual and Phoenix Life.
VentureWire 23.7.03

MapleWood seeks $215m for debut mezzanine fund
Florida-based MapleWood Group is to launch its debut mezzanine fund with a target of $215m. The firm already manages a $130m LBO fund. MapleWood Mezzanine Partners is seeking to leverage $100m raised from institutions with another $115m in unsecured debt for the US Small Business Administration. The fund will invest in small and medium-sized companies.
The Private Equity Analyst July 2003