Adams Street Partners Report Card

It’s gotten harder to hide in private equity. It’s especially so for firms that, like funds-of-funds manager Adams Street Partners, manage public pension money.

The early 2000s saw journalists, unions and students launch a major push to pull back the curtains on private equity performance, part of a transparency movement that took hold in the wake of the Enron scandal. Since then, many public pensions and universities have made it relatively easy to obtain top-line return data on the funds they’ve backed.

Like other publications, Buyouts has taken advantage of the development to produce periodic reviews of industry fund performance, including an annual look at the performance of funds of funds. Occasionally, we even stumble across a fresh set of data. It happened again last month when reporter Nancy Gordon discovered a report on the private equity portfolio of the Montana Board of Investments. The numbers were buried in the back of the minutes of the board’s mid-May meeting.

As a whole, the Montana private equity portfolio, valued at $1.3 billion, looks fairly unremarkable; as of year-end the well-diversified portfolio had posted an 11.8 percent net IRR and an investment multiple of 1.3x. But one thing stands out upon scrutiny. The state has been a big fan of funds of funds, and especially of ones managed by Chicago-based Adams Street, having backed 34 of its funds and trusts since 1990. It’s the first time that Buyouts has unearthed a cache of fund returns for Adams Street, a pioneer in funds of funds and still one of the biggest players. Its results look respectable—better, on the whole, than what Montana has achieved in its overall portfolio, and the board has called it “likely” that it will boost its “exposure” to funds of funds in coming months, according to the minutes.

Indeed, the results will almost certainly give a lift to our annual funds-of-funds report card once I include them in the sample (assuming I can figure out how to smoothly integrate them). All told, the state committed $327.1 million from 1990 to 2005 to funds marketed by Adams Street and predecessor Brinson Partners. Of that sum about 84 percent has been drawn down for investments in companies. The result as of year-end has been an investment multiple of 1.4x and a net IRR to Montana of 12.1 percent. By comparison, our November report card on 48 funds of funds found our sample (specifically, that portion of the sample for which we had the necessary data) generating an investment multiple of 1.1x, and a median IRR of 9.1 percent.

Unfortunately, the comparison of the Adam Street family of funds to the larger sample of funds of funds isn’t as clear cut as I’d like. The time frame is different, for one thing, with the pool of 48 funds of funds stretching over a far larger swath of vintage years, 1985 to 2003. That means the J-curve effect—the phenomenon that artificially depresses the performance of younger private equity funds—may be more pronounced with the Adams Street pool.

In addition, the complexion of the Adams Street funds have changed over time. The older Adams Street funds and trusts backed by Montana, marketed under the Brinson name, have by and large each been earmarked for one of four strategies: direct venture capital investments, secondary purchases of limited partnership interests, primary commitments to U.S. private equity funds (including venture capital), or primary commitments to non-U.S. private equity funds. By contrast, the newer funds of funds, marketed under the Adams Street name, are either earmarked for U.S. or non-U.S. commitments, and they generally include allocations to secondary investments, while the U.S. funds of funds include allocations to direct investments.

As it happens, Montana conveniently breaks out the results for the four main investment strategies pursued by Adams Street. In order of performance, highest IRR to lowest, the Adams Street secondary funds had generated an IRR of 45.2 percent and an investment multiple of 1.5x as of year-end; the direct venture capital funds had generated an IRR of 14.5 percent and an investment multiple of 1.4x; the non-U.S. primary funds of funds had generated an IRR of 11.9 percent and an investment multiple of 1.4x; and, bringing up the rear, the U.S. primary funds of funds had generated an IRR of 9.3 percent and an investment multiple of 1.3x.