Thursday, January 29, 2015

CalPERS Posts Fund’s Record on Web Site; Money Managers Aghast


CalPERS Posts Fund’s Record on Web Site; Money Managers Aghast

It’s a report card that has rocked the secretive venture capital world, and one that even the ‘A’ students didn’t care to see displayed on the refrigerator. CalPERS, the giant California pension fund that sets trends for many large investors, has posted on its Web site the performance of every venture or buyout fund in which it’s invested for the past decade. Firms typically guard these numbers carefully, but the CalPERS chart even says which funds are meeting expectations, and which are disappointments.

The results were first posted in May, but it took until July for word to spread. Even now, managers of venture funds and other private portfolios are talking about the posting, aghast that the numbers — good, bad, and ugly — are there for all to see. Said one private equity executive, "If you show up in the ‘below expectations’ column, you’re done."

Boston’s Thomas H. Lee Co. gets a gold star: The buyout firm’s 1996 fund was one of CalPERS’s best performers that year, with a 44.3 percent average annual return, and sits neatly in the "exceeds expectations" column. But woe to the Beacon Group, Inroads Capital Partners, and Atlantic Medical Capital, among the firms slapped with the rating "below expectations/with concern."

Getting poor marks from CalPERS, the California Public Employees Retirement System, is a sure warning that the $158 billion pension fund may not sign up for that firm’s next fund. But it also could antagonize venture funds that CalPERS wants to invest in. Peter Lawrence, managing partner at Flag Ventures in Stamford, Conn., a firm that invests in private equity funds on behalf of wealthy families, said, "Will CalPERS find itself having more difficulty getting into funds, now that they’ve gone to the trouble of publishing these numbers? I think the answer is yes."

For many years, CalPERS has done this detailed performance assessment for board members of its $14 billion portfolio of alternative investments. The information could have been accessed by others under the state’s public disclosure laws. But this is the first time CalPERS has posted the report on its Web site, albeit in the archives, in a place not easily found. Brad Pacheco, spokesman for CalPERS, said, "This information has always been available."

The industry buzz around the report stems from the secrecy with which venture firms and buyout artists guard the specifics of their returns. Virtually every firm claims "top quartile" performance, and the numbers they give out are suspect, venture analysts say. Steve Lisson of Austin, Texas, on his controversial Web site, InsiderVC.com, tracks venture returns by doing his own calculations on venture portfolios. He is the only independent source on such numbers and has drawn fire from some venture capitalists for breaking the code of silence.