peHUB Wire: Friday, October 16, 2009

I interviewed Bob Boldt yesterday, as part of Buyouts Texas. For the uninitiated, Bob is a former CalPERS staffer who went on to become chief investment officer at UTIMCO. He now runs the Agility program for Perella Weinberg, which basically tries to replicate the “large endowment” model of investing. A few quick hits from the interview:

• Bob defended the endowment model, despite the current troubles faced by some of its practitioners. He says the key isn’t allocation, but trying to be a first mover into new asset classes. First into venture capital, first into private equity, first into emerging markets real estate, etc. He acknowledges that endowments didn’t act fast enough when they saw liquidity drying up, but still believes the model will prove superior over time.

• He opposes the proposed SEC ban on placement agents, but supports political contribution ban (or at least full disclosure). Says that when he gets a lousy GP presentation, it’s usually the placement agent who provides the relevant information.

• Says one of his proudest moments at UTIMCO was during the disclosure debate, when the school began releasing fund-specific performance data (but not underlying asset information). During Q&A, a current UTIMCO staffer says the move, while unpopular with many GPs at the time, has provided GPs with a comforting level of certainly over what will, and what won’t, be disclosed.

• Boldt left CalPERS in 2001, but did discuss the current pay-to-play allegations. “I can categorically say that no one ever told me that I had to make an investment… Sometimes members of the board would ask me to look at things, but never insisted that I recommend them.” He did acknowledge, however, that certain finders had cozy relationships with board members, outside of interactions with investment staff.

• Boldt also made an interesting observation about the CalPERS board structure. Said that when he was there, state government was controlled by Republicans, which meant the board was politically-split (appointed members were Republican, voted union reps were Democrat). Says the tension acted as a check on either side doing something unseemly. He wonders if that check became absent once Democrats took over (at least for a while) in Sacramento.

*** Speaking of large endowments, let’s put to bed the canard that Harvard failed to sell any secondaries last year (as got reported in a recent NYT story about the Stanford process). It’s true that Harvard didn’t sell everything it wanted to, but the school did unload a whole slew of stakes. It’s even done some more recent secondary sales, like selling a $150 million piece of Denham Capital Management to Mass PRIM.

*** Pay-to-play thought: Someone mentioned yesterday that pension funds like CalPERS may end up losing both the trust and money of their pensioners. Possible, but may I suggest that trust and money are not inextricably linked in this case? CalPERS could lose its pensioners trust over pay-to-play, while simultaneously making money on those very same funds.

For example, the co-invest fund at the heart of Barrett Wissman’s guilty plea in New York actually has a positive IRR (even though it participated exclusively in mega-buyouts). CalPERS’ recent Apollo commitments do look lousy (J-curve or not), but its Aurora commitments are above water. So are most of its Yucaipa commitments. Just saying…

*** Yesterday’s HE news section included an item about how Todd Stevens was stepping down as a managing director with Epic Ventures (fka Wasatch Venture Fund), after 16 years. He’ll now serve as a venture partner.

We’ve since learned that Stevens’ next move is as a founder of RenewableTech Ventures, which will focus on cleantech opportunities in the Rocky Mountain region. The plan is to raise $100 million for the firm’s debut fund. Stevens’ partners are Alberta, Canada-based entrepreneur/angel Dal Zemb and fellow EPIC venture partner Bob Pothier (based in Idaho).

*** We first reported in August that Sun Capital investors were pushing for a fund size cut, and now the firm has acceded. In a letter dated yesterday (and obtained by peHUB), Sun is offering to reduce its $6 billion fifth fund by $1 billion, or down to $5 billion. If not all LPs cut their stakes by 16.7% — for example, Sun employees might not cut their commitments – then other LPs can reduce by up to around 33 percent.

Sun is keeping its 2% management fee intact, and there is no mention of altering the structure whereby the management fee is rolled over into the GP contribution (a bizarre structure that leaves Sun with very little operational capital when transaction fees aren’t rolling in). Also no word on what will happen to previously paid management fees, which now would have to be paid back (or perhaps carved out of future fees).

The fund size cut is expected to be made effective on December 31.

*** Have a great weekend… Go Angels!

Top Three

CVC Capital Partners has decided against making a formal bid for UK bus operator National Express, after originally making a $1.24 billion approach. National Express now expects to launch a minority fundraise, with the support of the Cosmen family, an existing shareholder and part of the CVC consortium.

Falconhead Capital has formed GPSI Holdings LLC, a provider of cart-mounted GPS services to golf courses. The deal is being done via the acquisition and rollup of three companies, including bankrupt GPS Industries Inc. Falconhead’s partner on the deal is pro golfer Greg Norman.

American Capital has sold its equity stake in! HomeAway Inc., an Austin, Texas-based operator of an online vacation rentals website, to existing shareholders. American Capital says the $15 million sale represented a $4 million gain. HomeAwayhas raised over $480 million in VC funding, from firms like Technology Crossover Ventures, Institutional Venture Partners, Redpoint Ventures, Trident Capital, Austin Ventures and American Capital.

VC Deals

Marval Biosciences, a San Diego-based developer of liposomal nanocarriers to deliver CT contrast agents, has raised $2.5 million in second-round funding. Backers include DFJ Frontier and DFJ Mercury.

Technorati Inc., a San Francisco-based search engine for the blogosphere, has raised $2 million in new Series D funding. The company had held a $7.5 million first close in the summer of 2008. TechCrunch reports that the extension came fromreturn backers Draper Fisher Jurvetson andMobius Venture Capital. No mention of existing shareholder August Capital. Technorati had previously raised $30

Fizzback, a UK-based operator of a cross-channel platform for real-time dialogue between businesses and their customers, has raised £1.6 million in Series B funding. Nauta Capital led the round, and was joined by return backer Advent Venture Partners.

Buyouts Deals

ACON Investments has acquired Fairway Outdoor from Morris Communications Co., for an undisclosed amount. ACON will merge Fairway with Magic Media, an existing portfolio company that also focuses on the outdoor advertising space.

PAG Capital Partners has acquired a majority stake in Corporate Technology Solutions LLC, a provider of low-voltage structured cabling installation services in Arizona. No financial terms were disclosed. CTS was advised by The March Group.

Webster Financial Corp. (NYSE: WBS) has completed its sale of $115 million worth of newly-issued common stock to Warburg Pincus.

PE Exits

Syneron Medical Ltd. (Nasdaq: ELOS) has agreed to acquire Primaeva Medical Inc., a Pleasanton, Calif.-based developer ofa minimally-invasive RFdevice for the treatment of skin wrinkles and laxity. The deal includes a $7 million up-front payment in cash, plus up to $23 million in earn-out payments. Primaeva Medical had raised around $14 million in VC funding, from Affinity Capital Management, Delphi Ventures and Frazier Healthcare Ventures.

Human Resources

Mary-Laura Greely has joined McDermott Will & Emery LLP as a Boston-based partner in the firm’s corporate department. She previously was head of the private company practice at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo.