Lid lifted on Utimco portfolio

The University of Texas' publication of performance data for its private equity fund portfolio confirms that recent private equity and venture capital funds are facing an uphill struggle to match returns from older vintages.

Performance data published yesterday by Utimco, the Texan endowments manager, confirmed that recent vintage buyout and venture capital funds have had a troubled start into their investment cycles.


Utimco, which has  also  acknowledged that internal rates of return (IRRs) of private equity funds that are yet to reach maturity are difficult to interpret and can be misleading, is a limited partner in several funds raised over the past three years which have suffered significant unrealised losses in the wake of the stock market collapse and bursting of the Internet bubble.


Among the worst performers in the Utimco portfolio are Crescendo Ventures IV, raised in 2000, with an IRR of negative 45.5 per cent, Baker Capital's second fund (2000; -48 per cent) and Austin Ventures' fifth fund, which was raised in 2001 and has generated a negative IRR of 54 per cent.  


These numbers contrast sharply with returns generated by older vintages, reflecting just how dramatically the market has  changed for venture capitalists  and their portfolio companies. Austin Ventures' fourth fund, raised in 1995, is among the star performers in the portfolio with an IRR of 73.3 per cent to date. Crescendo Ventures' 1997 vehicle has generated 25.3 per cent.


The performance of buyout firms that Utimco has backed more than once reveals a similar picture  to VC funds, albeit on a less dramatic scale. The Carlyle Group is represented in the portfolio with a 1996 vehicle that has generated 26.9 per cent, and a 2000 product that stands at minus 6.2 per cent.


Doughty Hanson, which delivered an impressive 50.2 per cent IRR from its 1996 second buyout fund, is at 5.7 per cent with its 1998 third fund. CVC Capital Partners' 1996 European Equity Partners has returned 20 per cent to date, while several buyout funds managed by 3i have turned in performances ranging from  nine  per cent IRR for the UK 1996 Investment Partner fund to negative three per cent for UK Investment Partners II.


Utimco is also invested in Kohlberg Kravis Roberts's 1996 fund, which has returned 13.4 per cent, as well as Clayton Dubilier & Rice's Fund V, which has returned minus 4 per cent since 1995.


Utimco, whose alternative investment programme is headed by Bob Boldt, decided to reveal performance data  for its private equity  portfolio partly in an effort to rebut allegations that it had made investments in general partnerships where personal relationships existed between professionals on either side.


The decision to publish performance data of individual funds has been criticised by several general partners  of the firms involved, whilst  others  within the Utimco portfolio have applauded  the move. However, the overriding concern of many GPs appears to be whether limited partners are to take their demands for greater transparency in private equity even further and demand that  private equity and VC firms publicise more financial data relating to the  portfolio companies they are invested in,   the anxiety being that this degree of disclosure would compromise subsequent exit opportunities.


Practitioners in the US are expecting other public sector institutions investing in alternative assets to follow Utimco's example and give more information about their involvement in general partnerships. One risk they incur by doing so is that  some  general partners may opt to exclude public sector institutions from future fund offerings and turn to more discreet investors instead