Administration May 10, 2004

Report: UC Had 21% Annual VC Loss Over Three Years

October 17, 2003 (PLANSPONSOR.com) - The University of California (UC) may have had another reason for battling so hard to keep secret the results of its venture capital pension investments other than its stated goal of protecting proprietary investment company data.

Reported by

Fred Schneyer

According to a San Jose Mercury News report, UC’s private equity portfolio has lost 21% annually over the past three years with one venture fund, Venture Strategy Partners, II, showing a 37.5% loss.

When UC refused to release its results earlier this year because doing so would interfere with its ability to prudently invest pension funds, the Mercury News and the Coalition of University Employees sued to get the data and won before a California state judge. The university also lost when it asked the judge to reconsider the decision (See UC Losses Venture Capital Disclosure Court Battle ).

The university’s venture capital moves apparently came at a risky time, according to the newspaper. It invested $350 million into venture capital firms during the Internet bubble years of 1999 and 2000, or more money than it invested with such firms over the 13 preceding years. Many other public institutions acted similarly, thinking robust returns would continue.

There was only one problem, according to the Mercury News: venture firms have already invested a majority of those 1999 and 2000 funds into start-ups, many of which have already gone belly up or are headed in that direction. In fact, venture capital experts agree that funds invested in 1999 and 2000 are likely to end up in the red.

The results show Warburg Pincus VIII, a venture fund that began investing in 2001, is so far bucking the trend with a 7% “internal rate of return.” That means Warburg has made a 7% annual return so far, and is the only firm to yield a positive result among the venture firms invested in by the UC since 1999. On the struggling side was Hummer Winblad Venture Partners III, which began investing in 1997, and saw a minus 15.3% return rate.

It is possible things may turn around. Venture funds have a 10-year life cycle, and it often takes years for their investments to yield profits. Also, the university’s pension investments in private equity amount to only about 2.3% of its total invested, according to the newspaper.