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IP: NYTimes.com Article: What's That Rumble in Venture Capital Funds?
From: Dave Farber <dave () farber net>
Date: Sun, 03 Mar 2002 09:32:03 -0500
What's That Rumble in Venture Capital Funds? March 3, 2002 By NORM ALSTER Venture capital and other private equity investors, generally known for their patient long-term outlook, are getting more than a little restless. Increasingly, they want to escape the heavy capital commitments they made at the height of the technology investing frenzy. Some are suing to recover losses. An outbreak of litigation in this relatively closed world is one clear sign of investor frustration over the tens of billions of dollars that have been committed but not put to use. The mood contrasts sharply with that of the long bull march of the 1980's and 90's, when venture capitalists and their investors earned an average of more than 18 percent a year by selling stakes in companies they had nurtured to technology-hungry public and corporate buyers. But with initial public offerings now scarce and with the stock market soured on technology, tensions are rising between the general partners who run private equity funds and their limited partners - the banks, endowments, pension funds and millionaires who supply most of their capital. Limited partners have grown impatient over both poor performance and high management fees. Perhaps more significant, many limited partners now say venture capital firms are sitting on far more capital than they can invest profitably. With the air out of technology valuations and no fashionable investment themes, the industry has $75 billion of uninvested capital, according to Venture Economics, a unit of Thomson Financial that tracks venture capital data. That amount easily exceeds total venture investment from 1990 to 1998. The manager of one large university endowment on the East Coast, who spoke on condition of anonymity, said he was particularly angry that some venture capital firms had asked him and other limited partners to back companies that had been assigned rich valuations but were now worth much less. "They raised too much capital," the manager said. "They paid too much for the deals." <snip> Whether displeased with their investments or just needing cash, many limited partners are looking to sell their venture stakes. Although general partners have veto power over proposed sales and are understandably eager to maintain a stable investor base, turnover is rising. Banks, including J. P. Morgan Chase (news/quote) and Bank of America (news/quote), have been sellers. Wider bank selling is expected because the Federal Reserve is tightening cash reserve requirements on the private equity investments of banks. But with so much uncertainty over portfolio value, many who want to sell cannot find buyers. Timothy Jones, investment director at Coller Capital, a London-based buyer in the secondary market, forecasts $4 billion to $5 billion in secondary-market sales this year, up from an estimated $3 billion in 2001. But he also estimated that $20 billion in assets would be available for sale this year, which leaves "people with $15 billion or more in assets that can't find buyers." http://www.nytimes.com/2002/03/03/business/yourmoney/03VENT.html?ex=10161572 05&ei=1&en=836860f93a42ba92 For archives see: http://www.interesting-people.org/archives/interesting-people/
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- IP: NYTimes.com Article: What's That Rumble in Venture Capital Funds? Dave Farber (Mar 03)