Buyouts buoy CalPERS returns

No wonder buyout shops are managing to raise more money now than ever before. They’re outperforming VCs for every vintage year since 2001, at least according to the latest returns posted by the California Public Employees’ Retirement System.

Buyout funds represent the top three performers in the pension fund’s Alternative Investment Management Program for every vintage year since 2001.

However, the pension fund’s top all-time performers, in terms of cash on cash multiples, remain VC firms. Information Technology Ventures I, a 1995 vintage fund that caught the Internet boom just as it was taking off, returned $138.6 million, or 5.5 times CalPERS’ $25 million investment, according to the data through Sept. 30, 2006. The fund was managed by Palo Alto, Calif.-based Information Technology Ventures, which is no longer active.

Media/Communications Partners II, a 1992 vintage fund, managed by Boston-based M/C Venture Partners, returned $110 million, or 4.4 times CalPERS’ investment of $25 million.

First Reserve Corp., a Greenwich, Conn.-based buyout shop focusing on the industrial and energy sectors, was the top performing fund for the 2001 vintage with its First Reserve Fund IX vehicle, returning $346.1 million, or 2.8 times CalPERS’ $122 million investment. The best performing VC fund from the same vintage was Granite Global Ventures I, a later stage fund focused on the U.S. and China. Managed by Menlo Park, Calif.-based Granite Global Ventures, the fund returned $35.7 million, or 2 times CalPERS $17.6 million investment.

WLR Recovery Fund II, a distressed debt fund managed by New York-based W.L. Ross & Co., topped the 2002 vintage, returning $124 million, or 2.5 times CalPERS’ $50 million investment. The best performing VC fund from the same vintage was MPM BioVentures III. The biotech fund returned $45.2 million, or 1.1 times CalPERS’ $41 million investment. Last week, Boston-based MPM Capital announced it raised $550 million in commitments for fund IV, though the firm did not disclose whether CalPERS is an investor in the new fund.

Lime Rock Partners II, a natural resources fund, won the top spot for 2003 vintage funds, returning $27.7 million, or 3.2 times CalPERS’ $8.6 million investment. Westport, Conn.-based Lime Rock Partners raised $750 million last year for fund IV. No VC fund for the 2003 vintage has broken into the black.

In fact, the more recent vintages have yet to return meaningful results. The performance gap between VC funds and buyout funds in more recent vintages might be attributed to the lackluster market for technology IPOs or to the longer time required for a venture fund to find liquidity.

Despite the underwhelming performance of venture firms during the previous five years, CalPERS added several big name firms to its roster in 2006. It committed $17.5 million to Austin Ventures IX; $5 million to Bay Partners XI; $2.5 million to Bridgescale Partners; $30 million to DFJ Element I; $5 million to Global Catalyst Partners III; $35 million to Lightspeed Venture Partners VII; $50 million to New Enterprise Associates 12; $15 million to Opus Capital Venture Partners; $25 million to Trinity Ventures IX; and $25 million to VantagePoint CleanTech Partners.

The pension fund also committed $23.8 million to ITU Ventures III, a Los Angeles-based venture fund, that the Harvard Endowment sought to terminate last year, according to documents. Brad Pacheco, a spokesman for CalPERS, was not able to provide comment or confirm that ITU Ventures III was still a part of the CalPERS portfolio at press time.