Yesterday’s business pages were full of homages to Ted Forstmann, who passed away from brain cancer at the age of 71. They correctly noted that he was a private equity pioneer, colorful character and exceptional philanthropist.

But there also was a fourth meme that reads a bit too rosy: That Forstmann voluntarily walked away from private equity after deciding that his brand of leverage-light – or self-leveraged – buyouts could no longer compete.

The reality is that none of Forstmann Little’s final three equity funds performed very well. Take a look at the following performance data from Forstmann Little limited partner Colorado PERA, with Cambridge Associates median benchmarks in parenthesis:

• Forstmann Little Fund V, 1996: 5.63% (7.94%)
• Forstmann Little Fund VI, 1999: -21.75% (11.66%)
• Forstmann Little Fund VII, 2001: 3.86% (22.32%)

It’s not perfect apples-to-apples as the CoPERA data is through Q4 2010 and the Cambridge data is updated through Q2 2011, but it should be pretty close given that each fund is at least 10 years old. What it says to me is that Forstmann might actually have had some difficulties raising a new fund, particularly considering his legal row with the state of Connecticut over questionable cross-fund investing in a couple of large telecom investments.

Not saying he wouldn’t have gotten it done – virtually everyone seemed able to raise PE funds in 2004-2007, but it would have been much more difficult for Forstmann than it had been in the past. In other words, there was more than one reason to walk away.

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