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Term Sheet — Friday, June 26

Random Ramblings


The California Public Employees’ Retirement System (CalPERS) used to be the 800 lb. gorilla of private equity, with hundreds of fund relationships and seemingly-unlimited resources.

Between 2006 and 2008, for example, the pension giant committed $36.7 billion to 130 funds. Then came a massive placement agent scandal, a change in management and major pullback. Between 2009 and 2013, for example, CalPERS deployed just $5.2 billion to 23 funds (despite producing 3, 5, 10 and 20-year returns — through fiscal 2014 — that beat their public equity portfolios).

The marketing message, of course, is that CalPERS has become smarter and more selective — sloughing off under-performing managers and doubling down on a smaller group of firms in order to gain better leverage when negotiating terms.

But the reality is that CalPERS is once again showing signs of dysfunction.

During an investment committee meeting in April, the system’s chief operating investment officer, Wylie Tollette, was asked about how much the system had been paying out in carried interest to its private equity managers. His reply:

“Profit-sharing in private equity is embedded in the return. It’s not explicitly disclosed or accounted for. We can’t track it today.”

Before continuing, let me stipulate that the amount of carried interest paid by a pension fund is tied directly to investment performance. The better the fund’s returns, the more that will be paid in carry. If an LP brags about paying a small amount of carry, that likely means it has lousy returns.

But, that said, Tollette’s claim is absurd. Either he’s not telling the truth, or he’s overseeing a massive breakdown in financial controls. Whichever way you slice it, the result should be pissed off pensioners.

CalPERS receives annual audited financial statements from all of its private equity fund managers. These documents do indeed include information on carried interest.

Yes, you may need a calculator to break out your pro rata piece of the fund, or to work out the amount of carry paid since a fund’s inception, but it most certainly can be done. I’ve spoken to a variety of senior LPs at other institutions (including public pensions) over the past day, and each of them is dumbfounded by the CalPERS claim.

Another CalPERS excuse for being unable to calculate its carry is that there is no standardized reporting of private equity returns. This is true. But it doesn’t prevent CalPERS from regularly publishing data such as internal rates or return (IRRs) and total fees paid. How come lack of standardization prevents CalPERS from calculating carried interest, but not numbers that come from the same primary sources?

Finally, let’s go back to that part about CalPERS consolidating its manager roster. LPs tell me that if CalPERS feels it is not receiving adequate information on carried interest, there is a simple solution: Call the PE firm and ask for it. “There is no way a general partner would refuse to send such basic information to one of its largest LPs,” says a longtime private equity portfolio manager.

A CalPERS spokesman says that, in the system’s opinion, this is a “private equity industry issue.” No. This is a CalPERS issue. Once again, America’s largest public pension has its house out of order.



• Sunrun Inc., a San Francisco-based residential solar energy company with nearly 80,000 customers, has filed for a $100 million IPO. It plans to trade on the Nasdaq under ticker symbol RUN, with Credit Suisse, Goldman Sachs and Morgan Stanley serving as lead underwriters. The company reports a $162.5 million net loss on around $198 million in 2014 revenue.

Sunrun has raised over $265 million in venture capital funding, from firms like Foundation Capital (19.7% pre-IPO stake), Accel Partners (13.2%), Canyon Partners (9.1%), Sequoia Capital (9%) and Madrone Partners (7.5%). It reports having only around $105 million in cash on hand, and a $52 million loss in Q1.

For more on what Sunrun’s IPO means about solar energy and Silicon Valley, please go here.


• Airbnb is “on the brink” of raising $1.5 billion in new funding at a $24 billion valuation, according to the FT. General Atlantic would lead the deal, with “substantial participation” from Hillhouse Capital and Tiger Global Management. For more, check out Fortune‘s big new feature on Airbnb CEO Brian Chesky by going here.

• Postmates, a San Francisco-based on-demand delivery company, has raised $80 million in new VC funding led by Tiger Global Management at a $400 million valuation. The company previously raised around $58 million, from Spark Capital, Matrix Partners, SoftTech VC, Crosslink Capital and individual angels. Read more.

• LittleBits, a New York-based developer of prototyping tools, has raised $44.2 million in new VC funding. DFJ Growth led the round, and was joined by Morgan Stanley, Grishin Robotics, Wamda Capital and return backers Foundry Group, True Ventures, and Khosla Ventures. Read more.

• Guavus Inc., a San Mateo, Calif.-based provider of “big data analytics solutions for operational intelligence,” has raised $30 million in new VC funding from existing shareholders. The company previously raised $107 million from Artiman Ventures, Sofinnova Ventures, Intel Capital, SingTel Innov8, Investor Growth Capital, QuestMark Partners and Goldman Sachs.

• Qwilt, a Redwood City, Calif.–based provider of open caching and online video delivery solutions, has raised $25 million in Series D funding. Disrupt-ive led the round with a $16 million investment, and was joined by Innovation Endeavors, Cisco Investments, Accel Partners, Bessemer Venture Partners, Marker LLC and Redpoint Ventures.

• Stand, a San Francisco-based social network focused on philanthropy, has raised $2.25 million in seed funding. Resolute Ventures led the round, and was joined by Greylock, Fresco Capital and individual angels like Jack Dorsey. In other company news, Twitter co-founder Biz Stone will become chairman of the board.

• BankerBay, an investment banking platform that connects corporate deals with institutional investors, has raised more than $2 million in seed funding. Investors include Scale.VC and David Toh. BankerBay was founded in Singapore, but has relocated its headquarters to New York.


• ABRY Partners has acquired an undisclosed stake in The Hiib Group, a Richmond, Va.–based mid-market insurance agency. No financial terms were disclosed. Sellers include BHMS Investments.

• Apollo Global Management and Ares Management have made takeover offers for General Electric’s healthcare finance unit, which could be worth more than $11 billion, according to Bloomberg. Other bidders include Capital One Financial Corp. (NYSE: COF) and Ventas Inc. (NYSE: VTR). Read more.

• ArcLight Capital Partners is in talks to acquire a gas pipeline in the North Sea from Total SA (Paris: FP) for upwards of $1 billion, according to Bloomberg. Read more.


• Cathay Capital Private Equity has acquired an undisclosed stake in SeaOwl, a provider of technical assistance, facility and ship management services to major oil and gas companies and the French government. No financial terms were disclosed.

• CVC Capital Partners and KKR are considering offers to buy a “sizeable stake” in Endesa, the listed Spanish unit of Italian energy group Enel SpA, according to Reuters. Endesa had a market cap of around €13 billion, prior to the report. Read more.

• Equistone Partners Europe has entered exclusive talks to sell its majority stake in Stella, a French gates and shutter manufacturer, to Intermediate Capital Group. Read more.

• Pharos Capital Group has acquired a control position in Motion PT Holdings, a New York–based provider of physical therapy and occupational therapy services.

• Century Park Capital Partners has sponsored a recapitalization of Covercraft Industries Inc., a Pauls Valley, Okla.-based provider of exterior and interior auto protection products. No financial terms were disclosed.

• Cinven has agreed to acquire a majority stake in Synlab Group, a Germany-based provider of lab services, from BC Partners. No financial terms were disclosed.

• Zep Inc. (NYSE: ZEP) shareholders have approved a $692 million, or $20.05 per share, buyout agreement with New Mountain Capital. Zep is an Atlanta-based maker of cleaning and maintenance producers.


•, a Vienna, Va.-based provider of smartphone app-controlled home security systems, raised $98 million in its IPO. The company priced 7 million shares at $14 per share (middle of $13-$15 range), for an initial fully-diluted market cap of around $669 million. It will trade on the Nasdaq under ticker symbol ALRM, while Goldman Sachs, Credit Suisse and BofA Merrill Lynch served as lead underwriters. reports $13.5 million of net income on around $167 million in revenue for 2014. Shareholders include Technology Crossover Ventures (42.9% pre-IPO stake) and ABS Capital Partners (41.6%).

• Catabasis Pharmaceuticals Inc., a Cambridge, Mass.-based developer of medicines to treat inflammatory and metabolic diseases, raised $60 million in its IPO. The pre-revenue company priced 5 million shares at $12 per share (below $13-$15 range), for an initial market cap of around $175 million. It will trade on the Nasdaq under ticker symbol CATB, while Citigroup and Cowen & Co. served as lead underwriters. Catabasis has raised over $100 million in VC funding from firms like SV Life Sciences (25.8% pre-IPO stake), Clarus Ventures (24.9%), MedImmune Ventures (14.8%), Advanced Technology Ventures (10.3%) and Lightstone Ventures (6.8%).

• Glaukos Corp., a Laguna Hills, Calif.-based developer of implants to treat glaucoma, raised $108 million in its IPO. The company priced 6 million shares at $18 per share (above upwardly-revised range), for an initial fully-diluted market cap of around $628 million. It will trade on the NYSE under ticker symbol GKOS, while J.P. Morgan, BofA Merrill Lynch and Goldman Sachs served as lead underwriters. It reports a $14 million net loss on $45.5 million in revenue for 2014, compared to a similar net loss on $21 million in revenue for 2013. Shareholders include Montreux Equity Partners (13.5% pre-IPO stake), Versant Ventures (12.9%), Domain Associates (12.5%), Meritech Capital Partners (12.5%), OrbiMed Advisors (12%), Frazier Healthcare (10.7%) and InterWest Partners (10.7%).

• J. Alexander‘s Holdings, a Nashville, Tenn.-based operator of upscale dining conceptsJ. Alexander’s and Stoney River Steakhouse and Grill, has withdrawn registration for a $75 million IPO (originally filed last October). The company said that the “terms currently obtainable in the public marketplace” were not “sufficiently attractive.” It had planned to trade on the NYSE, with Stephens Inc., KeyBanc Capital Markets and Stifel serving as lead underwriters. It reported $6.3 million of net income on $149 million in revenue for the nine months ending Sept. 28,

• S1 Biopharma, a New York-based developer of therapies for sexual dysfunction, has withdrawn registration for a $40.25 million IPO (originally filed last October). No explanation was given. The pre-revenue company had planned to trade on the Nasdaq, with MLV & Co. serving as lead

Sophos, a UK-based cybersecurity company backed by Apax Partners, is prepping a London IPO that would value the company at around £1 billion. Read more.

• Wayne Farms Inc., an Oakwood, Ga.-based producer and processor of broiler chickens, has postponed an IPO that was designed to raise around $250 million at a $1 billion valuation. The company planned to trade under ticker symbol WNFM, with Citigroup and BMO Capital Markets serving as lead underwriters. Wayne Farms is currently owned by Continental Grain Company.


• Providence Equity Partners has hired Citigroup to find a buyer for Fairfax, Va.–based defense IT company SRA International Inc., according to Reuters. The company could be valued at around $2 billion (including debt), and an IPO also is possible. Read more.

Wendel, a French private equity firm, is seeking buyers for leather chemicals maker Stahl, according to Reuters. Read more.


• Humana (NYSE: HUM) is nearing a deal to sell itself to a larger healthcare insurer, with both Aetna (NYSE: AET) and Cigna (NYSE: CI) are circling, according to the NY Times. Humana has a current market cap of around $29.5 billion. Read more.

• Potash Corp. of Sakatchewan (TSX: POT) has offered to acquire listed German rival K&S AG for approximately €7.8 billion, as first reported by the WSJ. Read more.

• Valeant Pharmaceuticals (TSX: VRX) has made a “preliminary approach” to acquire animal health company Zoetis (NYSE: ZTS), according to the WSJ. Zoetis, which was spun out of Pfizer in early 2013, had a market cap of around $25 billion before the WSJ report. Read more.


• 137 Ventures, an investment firm that provides employee loans in exchange for equity in hot tech companies, is raising upwards of $200 million for its third fund, according to a regulatory filing.

• Grotech Ventures is raising upwards of $200 million for its next fund, according to a regulatory filing.

• Neuberger Berman has agreed to acquire the private equity fund-of-funds business of Merrill Lynch Alternative Investments from Bank of America Corp. (NYSE: BAC). No financial terms were disclosed for the deal, which will result in “key private equity professionals” from Merrill Lynch joining Neuberger Berman.

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