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Venture Funds Opened to Rare Public Scrutiny

Finance: University endowment releases results of more than 100 of its investments.


Managers of the University of Texas' endowment bowed to political pressure Friday and revealed how more than 100 of their private investments are faring in the bear market, offering a rare glimpse inside the clubby world of venture capital.

The disclosure--which included results for some of California's brand-name venture capitalists in Silicon Valley--underscored that even some of the savviest private investors haven't fared much better of late than those making bets in the public securities markets.

One of the university's endowment funds lost 17.2% in private equity for the year ended Aug. 31, and another lost 15.4%, according to the figures released. By comparison, the Standard & Poor's 500 index lost 18% during the same timeframe.

"All the [venture firm] partners I've talked to are, almost without exception, not happy" with the fact that the figures are being released, said Bob Boldt, chief executive of the $13-billion University of Texas Investment Management Co., or UTIMCO. "Some of these returns, especially for young venture partnerships, look very bad."

Venture capital firms generally invest $1 million or more in privately held companies, many of them high-tech start-ups. Their money comes from university endowments, pension funds and other large institutional investors, as well as very wealthy individuals.

Venture firms routinely give their well-heeled investors reports on how their funds are faring, but most require them to keep the results confidential.

At one point, the California Public Employees' Retirement System, or CalPERS, posted its venture fund results. But the venture capital firms complained, and CalPERS stopped the practice a year ago.

UTIMCO managers had feared that venture capitalists would sue to prevent the latest disclosures because the reported results could damage their reputations. Some threatened, but none sued within a 10-day window established by the attorney general of Texas, who ordered the data released.

It's no secret that venture capitalists haven't been doing well lately. Nationwide, the total loss for venture firms was 24% for the year ended March 31, according to the Venture Capital Assn. and Thomson Venture Economics.

But what was striking in the UTIMCO disclosure was that even certain blue-name venture firms have been struggling mightily, suggesting that the performance of any one fund seems more dependent on the year it was launched than on who is managing it.

For instance, a $10-million investment in 1995 with Information Technology Ventures of Menlo Park, Calif., so far has returned more than $54 million. But a $25-million investment with the same firm in 1998 is worth only $26.6 million as of now.UTIMCO says its 1997 investment with Crescendo Ventures of Minneapolis has yielded a 25% gain. But its 1999 investment with the same firm has produced a 25% loss. And there's a 45% loss on its 2000 investment.

Boldt emphasized that it is difficult to predict the overall performance of multiyear funds based on data from the first year or two, before portfolio companies have had a chance to grow.

Of UTIMCO's active investments, the firm with the best results to date was Information Technology Ventures, whose two funds have posted a 57% gain.

The runner-up was Austin Ventures, with a 46% return from funds dating to 1995. At the bottom of the list was Advanced Technology Ventures of Massachusetts, down 33% since 2001.

Among California venture funds, UTIMCO reported that a 2001 investment in Foundation Capital has lost 28% of its value, and its 2000 investment in a Band of Angels fund is off 23%.

Despite the lackluster performance of certain private funds, Boldt defended UTIMCO's investment strategy. Since UTIMCO began investing in private funds in 1990, he said, the program has returned $400 million more than it would have earned through more conventional investments.

One notable UTIMCO investment was the $7.3 million it put into a fund run by defense industry investor Carlyle Group in 2000. Carlyle employs former President Bush. Boldt said he has seen no evidence of political interference with the endowment.

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