Earlier today, I explained why Elevation Partners is far from the “the worst run institutional fund of any size in the United States?” Of course, this raised a follow-up question: So, what is the worst run institutional fund of any size in the United States?
I don’t think it’s possible to give a definitive answer, at least when it comes to private equity and venture capital. After all, final judgement on these funds can only come once all the investments are realized. But we certainly can identify funds that are in trouble.
To do so, I turned to CalPERS, which likely has more VC/PE fund investments than any other U.S. institution. CalPERS publicly discloses performance data for each of its 642 general partners, through the end of Q3 2009. I ranked each of those firms by IRR, excluding any fund closed in 2007 or later (such funds are relatively young, and their IRRs can be unfairly depressed by the fabled J-curve). I also removed non-U.S. funds, which means you won’t see things like Permira Europe IV, Polish Enterprise Fund VI, Candover 2005 Fund or Carlyle Japan Partners.
So, without further ado, we’ll do this via slideshow (which has become something of its own issue today)
[slide title="Opportunity Capital Partners IV"]
OCP IV is a $100 million fund raised in 2001. It’s almost completely called down, with a -30% IRR through the end of Q3 2009.
The firm’s website says it “primary investment focus is providing capital to later stage companies seeking acquisition and expansion financing. OCP focuses primarily on businesses in the areas of communications, including media broadcasting and wireless, applied technology and traditional manufacturing segments. We invest in companies with exclusive licenses or franchises, proprietary products or processes or other unique features and characteristics that provide a clear and sustainable competitive advantage. OCP invests only in companies with experienced, compatible management teams that adequately cover each of the businesses’ key functional areas. Our preferred investment range is $2,000,000 to $10,000,000.”
Our records show that OCP has not since raised another fund.
[slide title="Aberdare II Annex Fund"]
In 2006, Aberdare raised around $15 million for an annex to its $50 million second fund (raised in 2001). The annex IRR is -27.5%, with no money returned so far. The overall fund is doing a bit better, but is still in the red (matches the logo).
According to CalPERS: “Aberdare Ventures is a small, highly collaborative team, deeply experienced as both venture investors and operators of healthcare technology companies. Aberdare’s investment focus is driven by years of experience growing biopharmaceutical product companies and therapeutic medical device companies.”
[slide title="Nogales Investors Fund I"]
It’s things like this that make LPs not want to do first-time funds. Nogales’ debut vehicle closed with around $100 million, but sports a -27.4% IRR.
According to CalPERS, Nogales I is “a private equity fund specializing in small- to medium-sized U.S. companies that participate in markets or have geographic locations traditionally underserved by other sources of investment capital. They have a successful history of making control and non-control equity and equity-related investments in small- to medium-sized businesses…. Their goal is to develop a close partnership with management and build a company that generates superior returns for their investors while at all times maintaining the highest levels of fairness and integrity.”
Again, this is according to CalPERS. The fact that superior returns are lacking is something to take up with their webmaster…
[slide title="Sevin Rosen Fund VIII"]
This is our first pure VC fund on the list, and was a $600 million vehicle raised in 2000. Actually, it was larger but then got scaled back.
It has a -25.4% IRR, but didn’t stop Sevin Rosen from raising a follow-on fund (and repeatedly trying to hit the 10-spot). Like many of its VC fund managers, CalPERS doesn’t provide a description. But here’s the Sevin Rosen website.
[slide title="Nogales Investors Fund II"]
It’s things like this that make LPs not want to do second-time funds. Los Angeles-based Nogales raised $245 million for this vehicle in 2006, and its currently underwater with a -24.7% IRR. Total distributions equal the number of Super Bowls won by the Cincinnati Bengals.
On the upside, this is still a very light portfolio, with barely 25% of its capital called so far.
[slide title="Convergence Ventures II"]
CV II was a $132 million fund raised in 1999 by Convergence Partners, a Mountain View, Calif.-based firm that is a self-confessed member of the walking dead. It has a -23.3% IRR, is fully drawn and has yet to return a single distribution.
Lots of Internet stuff in the portfolio, which makes its failure that much more remarkable. How do you screw up a 1999-vintage Internet VC fund based in Silicon Valley?
[slide title="Tallwood II"]
Tallwood II is actually the first institutional fund raised by Tallwood, which originally launched as an angel effort in 2000 serial entrepreneur and Dado Banatao.
It’s a $180 million fund raised in 2002, and has a -23.3% IRR and virtually no distributions. It later raised around $23 million for an annex fund that also is underwater.
[slide title="Inroads Capital Partners"]
This was a $50 million VC fund formed to invest in minority- and female-owned companies. It was based in Evanston, Ill., and has proven to be a disaster.
The fund’s IRR is -22.5% and is entirely called down with one active portfolio company. Not surprisingly, the firm no longer exists.
[slide title="Rosewood Capital V"]
Rosewood Capital V is a $200 million fund closed in 2006. It sports a -22.1% IRR and virtually no distribitions.
This is the most recent fund from Rosewood Capital, “a San Francisco-based private equity firm focused exclusively on equity investments in consumer growth companies… Rosewood backs profitable consumer companies driven by exceptional management teams and proven business models. The firm pursues both minority and majority transactions with an average equity investment size of $10-40 million.”
[slide title="Carlyle/Riverstone Renewable Energy Infrastructure Fund"]
This $685 million fund was raised as part of a larger partnership between Carlyle Group and Riverstone. And it’s lousy. The vehicle has a -21.2% IRR, is almost completely called down and has zero distributions.
Amazingly, Carlyle/Riverstone raised more than $3 billion for a follow-on fund (makes a bit of sense, since “renewables” are hotter today than in 2001). On the other hand, the relationship has been strained by all that pesky pay-to-play activity in New York…
[slide title="Acacia Venture Partners II"]
This $120 million fund raised in 1999 has an IRR off -20.7%, and is completely called down.
The San Francisco-based VC firm still has an active website, but we can’t find a record of it successfully raising a third fund. The focus is/was on healthcare services deals.