CalPERS yesterday announced that it is pulling out of hedge funds, in an “effort to reduce complexity and costs” in its investment portfolio.
The decision is generating a lot of attention. Not only because CalPERS is the nation’s largest public pension fund, but also because it comes amid public employee union complaints about hedge fund investments in states like Rhode Island and North Carolina. It is worth emphasizing, however, that CalPERS only has around 1.3% portfolio exposure to hedge funds, or $4 billion of $298 billion (managed by 24 hedge funds and 6 funds-of-funds). In other words, hedge doesn’t drive CalPERS returns.
I do wonder, however, if this at all reflects how CalPERS is thinking about private equity, which currently comprises more than 10% of the pension’s portfolio. Is private equity less complex or costly than hedge funds? Does it scale so much easier that it’s worth the extra hassle, or are the returns so much better that they’re worth the illiquidity trade-off? Or is there another shoe to drop at some point?
• Microsoft yesterday confirmed reports that it will buy Mojang, the Swedish maker of Minecraft, for around $2.5 billion. Word is that that Mojang founder Markus "Notch" Persson reached out to Microsoft a couple of months ago (unsolicited), and that other bidders never really had an opportunity to participate.
"Markus got sick and tired of it all," says a source familiar with the situation. "He had a team of around 30 people that managed the core product, but the rest of it was really led by the community. If something happened, though, the users would look back at him, because they thought he had more control than he really did... When he decided to sell, he basically decided that he liked Microsoft the best, from his experience working with the Xbox team... If you had asked Satya [Nadella] when he became CEO if this sort of company would be his first major acquisition, I'm sure he would have said no. So he was reactive rather than proactive."
It's also worth noting that many VC firms reached out to Mojang about possible investments over the past couple of years, but were all rebuffed. The company just didn't need outside capital.
• Bank break: Boutique investment bank Gridley & Co. has quietly ended its life as an independent outfit, merging its business with Boston-based AGC Partners. Firm founder Linda Gridley has joined AGC as a partner and co-head of digital media, but it does not appear that any other senior Gridley & Co. staffers made the jump.
• Recommended reading: Venture capitalist Bill Gurley sat down with the WSJ for a Q&A on whether or not Silicon Valley VCs are taking on excessive risk, to which he largely answers affirmatively (although he focuses more on the later stages than early stages). Here’s an excerpt:
"The crazier things get, the worse people execute.. took my family down to the Galapagos this summer and read this book on the way down there called "The Beak of the Finch" which is about this couple that has lived on Daphne Island for 40 years studying the finch. And, amazingly, when there are huge El Niño years and floods bring tons of food to this island, the finch population goes up like three or four times. Inevitably, when the rains are normal the next season there is massive death. Simply because once you get the food level back to a sustainable level. So, from a fitness perspective, excessive amounts of food lead to a lower average fitness and I think the same thing happens here.
Excessive amounts of capital lead to a lower average fitness because fitness, from a business standpoint, has to be cash-flow profitability or the ability to generate cash flow. That's the essence of equity value. And so I think we get further and further away from that in the headiest of times."
Read the full Q&A by going here.
• Pay-to-play? Yesterday I spent several hours going through “pay-to-play” accusations made by the New Jersey AFL-CIO against the state pension system, largely related to private equity and hedge fund commitments. With the exception of the General Catalyst example, which we discussed yesterday, the accusations are largely baseless. The most egregious accusation involves a political donation to Chris Christie that was made six years after the NJ pension system made its investment decision (and before Christie was even governor). Read my whole analysis by going here.
THE BIG DEAL
• Alibaba Group yesterday increased the proposed price range for its upcoming IPO from $60-$66 per share to $66-$68 per share. At the high end of its revised range, the Chinese Internet giant would raise more than $21.76 billion from the offering, and have an initial market cap of approximately $167.6 billion (for context, Amazon closed trading yesterday with a $155 billion market cap). It did not increase the number of shares being offered, as Facebook did in the run-up to its 2012 IPO.
Alibaba kicked off its IPO road-show last week, and reportedly filled its subscription book after just two days. It is expected to price the offering this Thursday night, and begin trading the following morning on the New York Stock Exchange under ticker symbol BABA. Read more.
VENTURE CAPITAL DEALS
• Docker Inc., a San Francisco-based open-source engine for lightweight app deployment, has raised $40 million in Series C funding. Sequoia Capital led the round, and was joined by return backers Benchmark, Greylock Partners, Insight Ventures, Trinity Ventures and Jerry Yang. VentureWire reports that the deal was done at a $400 million valuation. www.docker.com
• Fastly, a San Francisco-based content delivery and acceleration solutions, has raised $40 million in Series C funding. August Capital led the round, and was joined by return backers Amplify Partners, Battery Ventures and OATV. Read more.
• RJMetrics, a Philadelphia-based analytics platform for online businesses, has raised $16.5 million in Series B funding. August Capital led the round, and was joined by return backers Trinity Ventures and SoftTech VC. www.rjmetrics.com
• eSentire, a Canadian provider of active threat protection solutions and managed security services, has raised C$14 million in Series C funding. Georgian Partners led the round, and was joined by Cisco Investments, Northleaf Venture Catalyst Fund and return backers Edison Partners and VentureLink. www.esentire.com
• Virgin Mobile Central and Eastern Europe, a UK–based mobile virtual network operator, has raised up to €10 million from Delta Partners Capital. VMCEE also raised capital from the IFC, the European Bank for Reconstruction and Development and CEE Mobile Capital. www.virginmobilecee.com
• Semmle, a UK-based business analytics platform for managing software development, has raised $8 million in Series A funding led by Accel Partners. www.semmle.com
• WorkPop, a Los Angeles-based online job board, has raised $7 million in Series A funding, according to VentureWire. Trinity Ventures led the round, and was joined by SV Angel, Cornerstone OnDemand, Slow Ventures, Ironfire Capital, Plus Ventures, Joe Lonsdale and Aaron Levie. Read more.
• WeiChaiShi, a Chinese mobile crowd-tasking platform, has raised $3.2 million in VC funding. ClearVue Partners led the round, and was joined by Nokia Growth Partners. www.weichaishi.com
• Bellabox, an Australian beauty box subscription company, has raised $2.7 million in new VC funding from Allure Media. Read more.
PRIVATE EQUITY DEALS
• AEA Investors is in advanced talks to acquire Pro Mach, a Loveland, Ohio-based packaging equipment company, from Jordan Co. for approximately $1 billion, according to Reuters. Barclays is managing the process. Read more.
• Bain Capital, The Carlyle Group and Warburg Pincus are separately bidding to acquire upwards of a 75% stake in Famy Care Ltd., an India-based maker of contraceptive pills for women, according to Reuters. The deal could be valued at between $400 million and $450 million, with sellers to include AIF Capital (holder of a 10-15% stake). Read more.
• Brown Jordan International Inc., a St. Augustine, Fla.-based portfolio company of Crescent Capital Group, has acquired fellow outdoor casual furniture maker Tropitone Furniture Co. No financial terms were disclosed, except that the combined company is expected to generate around $400 million in annual revenue. www.bji.com
• Francisco Partners is planning to either sell or float EFront, a French provider of software to the financial services market, according to Bloomberg. It has hired Barclays to explore options, and believes EFront could be valued at upwards of $500 million in a sale. Read more.
• Hellman & Friedman is in advanced talks to acquire Emeryville, Calif.–based supermarket chain Grocery Outlet Inc. from Berkshire Partners for more than $1.1 billion, according to the WSJ. Read more.
• Investindustrial has agreed to acquire an 80% stake in Italian lighting business Flos SpA at an enterprise value of approximately €400 million. www.flos.com
• Kohlberg Kravis Roberts & Co. has agreed to acquire an 85.05% stake in the DJ equipment business of listed Japanese electronics company Pioneer, for approximately $551 million. www.kkr.com
• NeoSystems Corp., a Tysons Corner, Va.-based provider of outsourced back-office services, has raised $15 million in growth equity funding led by OFS Capital. Clearsight Advisors served as placement agent. www.neosystemscorp.com
• RestorixHealth, a Tarrytown, N.Y.-based portfolio company of Sverica International, has acquired Paradigm Medical Management, an El Segundo, Calif.-based operator of outpatient wound care centers. No financial terms were disclosed. www.restorixhealth.com
• Ridgemont Equity Partners has acquired a majority stake in The Cook & Boardman Group, a Charlotte, N.C.–based distributor of commercial metal and wood doors, door frames, door hardware and related products. No financial terms were disclosed. Sellers include Blue Point Capital Partners. www.cookandboardman.com
• Team Technologies, an acquisition platform sponsored by The Riverside Co., has acquired Protexer Inc. (a.k.a. Bootie Butler), a Knoxville, Tenn.-based maker of show covers and shoe cover dispensers. No financial terms were disclosed, except that GE Capital led the leveraged financing. www.bootiebutlershoecovers.com
• Isola Group Ltd., a Chandler, Ariz.-based maker of copper-clad laminate and prepeg for fabricating printed circuit boards, has withdrawn registration for a $100 million IPO (first filed in October 2011). No explanation was provided. UBS and Piper Jaffray were listed as lead underwriters, while shareholders include TPG Capital and Oaktree Capital Management. www.isola-group.com
• NeuroDerm Ltd., an Israel-based developer of treatments for CNS disorders, has filed for a $65 million IPO. It plans to trade on the Nasdaq under ticker symbol NDRM, with Jefferies and Cowen & Co. serving as lead underwriters. Capital Point Ltd. holds a 16.6% stake in the pre-revenue company. www.neuroderm.co.il
• Actua Corp. (Nasdaq: ACTA) has agreed to acquire FolioDynamix, a New York-based fee-based managed account solutions for the wealth management industry. The deal is valued at approximately $199 million in cash, in exchange for an approximately 97% primary equity interest. FolioDynamix had raised over $24 million in VC funding from ABS Capital Partners, Edison Ventures, Cambrian and Velocity Financial Group. www.foliodynamix.com
• H.I.G. Growth Partners has sold most of its stake in SpotXchange, a Westminster, Colo.–based video advertising platform for publishers, to RTL Group. No financial terms were disclosed. www.spotxchange.com
• Oracle (Nasdaq: ORCL) has agreed to acquire Front Porch Digital, a Lafayette, Colo.-based provider of content storage management solutions, from Hawthorn Equity Partners. No financial terms were disclosed. www.fpdigital.com
• Stratasys Ltd. (Nasdaq: SSYS) has agreed to acquire GrabCAD, a Boston-based online community for mechanical engineers. No financial terms were disclosed, but a source familiar with the situation puts the price-tag at around $100 million. GrabCAD had raised over $13 million in VC funding, from NextView Ventures, Matrix Partners, Atlas Venture, David Sacks and Charles River Ventures. www.grabcad.com
• Nucor Corp. (NYSE: NUE) has agreed to acquire Gallatin Steel Co., a Ghent, Ky.-based flat-rolled products mill, from ArcelorMittal and Brazil’s Gerdau for approximately $770 million in cash. www.nucor.com
• Orange (Paris: ORA) has offered to acquire Spanish telecom company Jazztel (CATS: JAZ) for approximately €3.4 billion. The €13 per share represents an 8% premium to where Jazztel stock was trading before being suspended upon reports of a possible takeover offer. Read more.
• Slyce Inc. (TSX: SLC) has acquired BuyCode, an Israel-based maker of an image recognition-based shopping app, for up to $5 million in cash and stock. www.slycecorp.com
FIRMS & FUNDS
• The Blackstone Group has begun raising its seventh flagship fund with a $16 billion target, according to the WSJ. Read more.
• Hellman & Friedman is oversubscribed by “several billion dollars” for its eighth flagship buyout fund, which is being marketed with a $10.25 billion hard cap, according to peHUB. Read more.
MOVING IN, UP, ON & OUT
• Emergence Capital Partners has promoted Santi Subotovsky to partner and Joe Floyd to principal. The VC firm also has made three new hires: Jake Saper as a senior associate, John Chen as associate and Julia Mailander as marketing manager. www.emcap.com
• Peter Fair and Robert Sverbilov have joined Golub Capital as a San Francisco-based managing director and director, respectively. Fair previously was co-head of the West Coast office at NXT Capital Venture Finance, while Sverbilov was a vice president with NXT. www.golubcapital.com
• Michael Sullivan has joined Tampa, Fla.–based private equity firm Westshore Capital Partners as a vice president. He previously was an investment banker at Cross Keys Capital. www.westshorecapitalpartners.com
• Alex To has agreed to join Bank of America as chairman of investment banking in China, according to Bloomberg. He had been serving in that position for Morgan Stanley. Read more.
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