U. Of Calif. Provides Wider Glimpse Of Performance

Our recent discovery of performance data from The Regents of the University of California reinforces many of the themes that emerged recently in our annual review of fund performance this fall, including the challenge that limited partners face trying to beat median returns. But it also sheds light on the performance of several high-profile funds, such as the vintage-2004 Bain Capital VIII, that we previously had no records for.

For the past two years, Buyouts has compiled IRRs, investment multiples and related data disclosed publicly by eight public pension and endowment funds, including the California Public Employees’ Retirement System. The U. of California appears to have been disclosing return data since 2003, when it was ordered to do so under the California Public Records Act. But Buyouts only recently came across the data on the university’s Web site. The data is current as of March 31 2009, a date notable for coming just weeks after public equity markets sank to a multi-year low.

The LBO portion of the U. of California private equity portfolio is substantial but young. Of the 91 funds in the portfolio, just 38 are vintage 2004 or younger, which is the cut-off we used in our annual review to avoid the j-curve effect. Managers of those 38 funds have drawn down just over $1 billion, and returned just over $1.7 billion between distributions ($1.3 billion) and an estimate of the valuation of remaining holdings ($438 million). So how does that compare to the other eight pension funds in our sample?

The median investment multiple of 1.34x and median IRR of 9.38 percent of those 38 funds puts U. of California close to the bottom of the class, although we were only able to calculate median investment multiples for six of the other investors (ranging from 1.45x to 1.57x) and median IRRs for six of the other investors as well (ranging from 8.71 percent to 15.45 percent). However, medians can be misleading, especially with a relatively small portfolio.

The actual investment multiple achieved by U. of California, dividing the total value of its vintage 2004 or older portfolio by total draw-downs, comes in at 1.67x. That puts it toward the high end of the range of 1.49x to 1.71x investment multiples achieved by five other investors for whom we could calculate a figure. Dividing total value by total drawn down for all 357 funds in our database for which we have adequate data produces an investment multiple of 1.65x. That suggests U. of California’s portofio is performing a tad bit above average, and does nothing to contradict the notion that achieving top-quartile performance, that Holy Grail of institutional investors, remains an elusive target.

The U. of California data trove is also notable for providing insights into the performance of several high-profile funds, although we again need to emphasize that March 31 marked a low point for equity valuations. On the positive side, the Golder Thoma Cressey Fund III, a vintage 1987 fund, produced a 5.59x multiple. That would place it second on our list of top-performing buyout funds of all time, behind the 1987 vintage Wingate Partners LP. (Noteworthy is that U. of California also invested in one of the best-performing venture funds of all time, Kleiner Perkins Caufield & Byers VII, which returned $487,658 on a $15,000 investment, for a 32.51x investment multiple.)

But several vintage-2004 funds appeared to have their work cut out for them as of March 31, including Fortress Investment Fund III LLC (which sported a 0.63x investment multiple), Century Capital Partners II (0.79x), Perseus 2000 Expansion Fund LLC (0.83x), Graham Partners II LP (1.02x), Wind Point Partners VI (1.06x), Wicks Communications & Media Partners III LP (1.14x), Genstar Capital Partners IV LP (1.15x) and Bain Capital Fund VIII (1.17x).