CryptocurrencyInvestingBanksReal Estate

Term Sheet — Friday, April 10

April 10, 2015, 1:13 PM UTC

Random Ramblings

Early greetings from San Francisco, where I've got to catch a plane back to Boston. Some notes to kick off your Friday:

Yesterday I expressed shock at a NY Times report that New York City’s pension system had “reported the performance of many of their investments before taking fees to money managers into account.” Namely, the story said that the pension system had been using gross performance figures for private investments like private equity and real estate -- and, once net calculations were made, returns were “$2.5 billion below expectations over the last 10 years.” Its primary source was NYC Comptroller Scott Stringer, who had ordered a review of the past decade of investment returns.

Since then, there have been some developments. First, NY Times messed up the story. The pension system had indeed included fees in its private investment performance calculations. It was fees on actively-managed public equity investments that had been excluded. Second, it should be emphasized that this $2.5 billion private markets figure ($1.7b for private equity, $900m for real estate) – which read like a loss – actually refers to private market investments vs. a public market equivalent (PME). In other words, it’s fewer hypothetical gains, rather than what we would generally think of as a “loss.”

More important, however, is that the Comptroller’s math is sprinkled with all sorts of fantastical fairy dust. For starters, the PME itself gets a 300 basis point bump to account for private equity’s liquidity. It’s a pretty big addition, given that NYC’s actual private equity investments appear to have actually outperformed the Russell 3000 (NYC’s public equity benchmark of choice) over the past ten years. Or at least it seems to have, based on NYC investment reports (which sometimes conflate gross returns with net returns, but breakouts by NYC's smaller pension systems suggest that the private equity data is all net of fees).;

In addition, the Comptroller’s report yesterday explicitly excludes private equity “results for funds in 2012, 2013 and 2014 vintages with less than 50% of assets drawn” – but then compares them to a PME that runs through 2014. In other words, the PME gets the benefit of bull markets while shortchanging private equity of those same valuation mark-ups. To be sure, I appreciate wanting to control for J-curves – but a 2012-vintage fund that is <50% called, in this era, might have had some significant IRR appreciation and maybe even some distributions.

I certainly understand wanting to pressure private equity and other Wall Street investment firms to reduce fees, and even implicitly threatening to walk away from the asset class. But this has been a pretty ham-handed way of doing it.

 It's (more) official: During a media earnings call last year, some reporter referred to The Blackstone Group as a "private equity firm." Blackstone president Tony James quickly responded that Blackstone views itself as a diversified alternative investment manager but, if media insisted on putting it in a box, then "real estate firm" would be most appropriate, based on AUM. Never has that been more true than this morning, with Blackstone spending more than $14 billion for assets from GE Capital Real Estate and another $2 billion to acquire publicly-traded REIT Excel Trust Inc.

Best of luck to everyone competing today and tomorrow at the VCIC International Finals in Chapel Hill. For the uninitiated, VCIC is a competition in which teams of b-school students form “VC partnerships.” They get pitched by real entrepreneurs, conduct due diligence, draw up term sheets for their desired investment, negotiate and then get grilled by judges (most of whom are real-life VCs). It's a great event that I almost always attend, but travel schedules interfered this time around. Promise to be back in 2016.

Have a great weekend...


 General Electric (NYSE: GE) has agreed to sell most of its GE Capital Real Estate assets for around $23 billion to The Blackstone Group (NYSE: BX) and Wells Fargo (NYSE: WFC). Read more.


 Clypd, a Cambridge, Mass.-based provider of sell-side technology to the television industry, has raised $19.4 million in Series B funding. RTL Group led the round, and was joined by Atlas Venture, Data Point Capital, Duke University, TiVo Inc., Transmedia Capital and Western Technology Investment.

 Vulcun, a San Francisco-based fantasy e-sports startup, has raised $12 million in Series A funding from firms like Sequoia Capital, Battery Ventures, Crosscut Ventures, CAA, Matrix Partners and Universal Music Group. Read more.

 ApplePie Capital, a San Francisco-based marketplace lender for the franchise industry, has raised $6 million in Series A funding. Signia Venture Partners led the round, and was joined by Freestyle Capital and QED Investors.

 Stanza, a Redwood City, Calif.-based “add to calendar” button that syncs sporting events with personal calendars, has raised $4.3 million in seed funding. Backers include Metamorphic Ventures, Founder Collective, Tekton Ventures, Western Technology Investment, Stanford-StartX Fund, Harris Barton and Ronnie Lott.

 C Channel, a Japan-based video site/online lifestyle magazine, has raised around $4.1 million in new VC funding. Backers include GMO Venture Partners, i-Stye, Asobi System Holdings, Gree, Nexyz, B Dash Ventures, MAK Corporation and Rakuten. Read more.

 Seismos, an Austin, Texas –based provider of real-time subsurface fluid flow monitoring for oil and gas production optimization, has raised $4 million in VC funding. Javelin Venture Partners led the round, and was joined by Osage Venture Partners and individual angels.

 Yeloha Inc., a Boston-based online solar energy sharing platform, has raised $3.5 million in Series A funding led by Carmel Ventures.


 Ardian has acquired a 43% stake in SERMA Group, a French provider of consulting for embedded electronic technologies and systems, from Chequers Capital. No financial terms were disclosed.

 ECS Federal LLC, a Fairfax, Va.-based provider of tech and engineering services to the U.S. federal government, has secured a “significant financial investment” from Lindsay Goldberg.

 ProQuest, a portfolio company of ABRY Partners and Goldman Sachs, has acquired SIPX, a Palo Alto, Calif.-based provider of digital course materials solutions that address copyright and cost concerns for universities. Sellers include Stanford Management Co., Mohr Davidow Ventures, Ulu Ventures and X/Seed Capital. No financial terms were disclosed.

 Clarification: Yesterday's issue reported that Abraaj Capital and TPG Capital had acquired a "majority stake" in Saudi Arabia-based fast-food chain Kudu. It was a Sharia-compliant debt investment, rather than an equity investment.


 ViewRay Inc., a Cleveland-based developer of radiation therapy technology for the treatment of cancer, has postponed its IPO. The company has filed to offer 4 million shares at between $12 and $14 per share, with Cowen & Co. and Stifel serving as lead underwriters. Shareholders include Aisling Capital (21.33% pre-IPO stake), Fidelity Biosciences (21.33%), OrbiMed Advisors (21.33%), Kearny Venture Partners (12.19%) and Siemens Venture Capital.


 Brazos Private Equity Partners has sold Healthcare Solutions Inc., a provider of medical cost management solutions to the workers' compensation and auto liability markets, to Catamaran Corp. (Nasdaq: CTRX). No financial terms were disclosed.

 Harman International (NYSE: HAR) has completed its previously-announced acquisition of SymphonyTeleca, a Mountain View, Calif.-based provider of enterprise software engineering and integration services, from Symphony Technology Group. The deal was valued at around $780 million, plus a possible cash earn-out.


 Jefferies Group has agreed to sell most of its Bache unit’s commodities and financial derivatives business to Societe Generale (Paris: SOGN). No financial terms were disclosed. Read more.


 Apax Partners is prepping an IPO for a “Permanent Capital Vehicle” that it set up six years ago to sell an ownership stake in the firm to a group of sovereign wealth funds, according to Bloomberg. Read more.

 SWaN & Legend Venture Partners is planning to raise upwards of $150 million for its third fund, according to a regulatory filing.


 Calvin Cheong has joined law firm Cooley LLP as vice president of business development. He previously was a director of business development with BDO.

 Andy Frank has joined Cerberus Capital Management as a managing director, with a focus on non-sponsor backed lending. He previously was with Stifel Nicolaus as a managing director and head of syndication for all debt capital markets.

 Filippo Passerini has agreed to join The Carlyle Group as an operating executive. He is the former group president of global business services and chief information officer of Procter & Gamble.

 Senia Rapisarda has joined HarbourVest Partners as a principal and head of the firm’s new Toronto office. Rapisarda had been consulting HarbourVest for the past year, and previously was with BDC Venture Capital.

 Woody Young has joined Perella Weinberg as a partner focused on telecom transactions. He previously was with Lazard, where his deals included AT&T’s $49 billion acquisition of DirectTV. Read more.

Share today's Term Sheet: