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Fund performance: FoF strategy paying off (mostly) for Oregon

Few venture capital funds can match the performance of Union Square Ventures 2004.

As of March this year, the $125 million early stage fund managed by the firm of the same name had an IRR of 70.6 percent and tossed off 6x more in distributions than capital invested, according to a recent portfolio report from the Oregon Public Employees Retirement Fund, an LP.

Not surprisingly, the fund tops Oregon PERS venture portfolio of vintage 2004 to 2008 funds by a mile.

What’s interesting is this: In second place is a fund of funds from Pathway Capital Management and three places behind it is another fund of funds managed by Grove Street Advisors.

In fact, almost half of the top 15 funds in the portfolio are funds of funds—seven of them, to be precise—a pretty impressive batting average. Near the top are two other Grove Street funds and a second Pathway fund.

Few public LPs have as great a commitment to funds of funds or as successful a strategy. Slightly more than 40 percent of Oregon PERS’ mid-decade portfolio is placed with them, along with a big chunk of its capital.

Yet, before you start selling your individual GPs in favor of a collective approach, be aware of this. A good number of the 15 worst performing funds in the portfolio—six—are funds of funds, too. This isn’t as bad as it sounds, considering the overall portfolio is performing fairly well, with 22 of 27 funds holding a positive IRR, according to the March 2014 portfolio report, and 23 showing improvement in the previous 15 months. Still, it is worth noting.

The accompanying chart lists the 27 funds in the 2004 to 2008 portfolio with commitment levels, distributions and IRRs. Among the biggest improvers is Pathway Private Equity Fund III-B, a vintage year 2008 fund that saw its IRR climb dramatically to 42.8 percent in March from 17.3 percent in December 2012.

Technology Crossover Ventures VII from 2008 also saw a strong advance and ended March with a 20 percent IRR. It had a 3.1 percent IRR in December 2012.