Cloud Spend On the Rise!

Percentage of what though.
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Paul Capital’s View on Secondaries Market

Article can be seen here.

There are probably 20 dedicated secondaries buyers on a global basis, but most of the capital is with around six of them. That has not changed very much and I think it will remain so. It seems like a business that should not have many barriers for entry, but there are huge barriers. If you want to put together a portfolio with some thought behind it, it takes a lot of work. We track the holdings of 24,000 institutional investors and you cannot build that kind of a database unless you have been in the business for a long time.

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Around 70 per cent of our transactions are the acquisitions of LP fund interests and 30 per cent are other kinds of transactions.

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Do you have an opinion on electronic exchanges for secondaries?

“They do not work. There is a huge amount of confidentiality involved in these transactions.

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Online Advertising Mark II

The new advertising model will be based upon user’s shared info. That sites like FB are collecting. See here for post. I’m not convinced that users will be willing to share their all their consumer habits online, or that representative samples of users use these sites and share their information. A quantitative comparison of advertising effectiveness through Doublelick vs FB should be done …

Need to brush up on basic statistics!

Liveblogging/notes from the LBS Private Equity Symposium

On a sunny London day on the first Thursday in June, Daniel attended the 2nd annual Private Equity Symposium at the London Business School. Hosted by the recently formed Coller Institue of Private Equity at LBS, the conference brought together PE specialists from business and academia. Luminaries such as Steve Kaplan (key note speaker from the University of Chicago) and the institute’s patron himself – Jeremy Coller.

Panel I: Does Private Equity have a role in Financial Crises?

Participants: Roger Holmes (CEO Change Capital Partners), Alex Knaster (CEO/Founder Pamplona Capital Management), Michael Powell (Head of Alternative Assets, USS), Per Stromberg (Director, Swedish Institute for Financial Rsearch).

Panel II: Financial Sector Bailout and Reforms – its impact on Private Equity & Venture Capital
Philip Augar (author “Chasing Alpha”), Chris James, Simon Clark (Partner Fidelity Ventures), Glen Suarez (Director, Knight Vinke Asset Mgmt)

PA - New Labour promoted financial services through (1) light touch regulation (2) capital gains tax low (3) user friendly approach to financial services industry. Has the cosy relationship btw gov’t & financial services industry ruptured ? Rhetoric – yes. Actions – Labour party still very much believes in market forces (look at ppl chosen for reviews – City grandees). Conservaties more of the same.

Q: US bailout?

CJ – Crisis unique. Past crises – flight to quality. Haven’t seen that this time. If no gov’t involvement for financial services, then horrific outcome. Stress test: profits for traditional banks is fairly good, spread between borrow/lend good 400-500 basis points.

Q: State involvement worsened situation by preventing capital allocation?

GS: Whats the LT issue? State has to provide role in FS sector going fwd. So long as gov’ts will advance guarantees to banks, then regulators will need to take account banks’ riskiness.

CJ: Distinction btw traditional & Ibanks. Influx of funds thru institutional investors.

PA: Media, govt, regulators, academics – this things works. Risk has been transformed, state of mind shift affected by regulators.

SC: Entreprenuer came in with a pitch new retail bank. Borrow 0% and lend at 400-600 bp higher.

Q: Impact on venture capital – certain credit for ventures?

SC: VCs had a bubble ten years ago. Not our fault this time. No IPO market last ten years Europe & US. Only China success. Answer to Q – no credit market for tech companies. Last ten yrs, chasing returns thru leverage not a good idea. Real growth is drivers and technology is growth area.

PA: Retail/media corporate-men took over HBOS & banks in general w/limited investment experience.

CJ: Governance pbs in US (board turnover low). Also, bankers incentives wrong: had outright guarantee from govt, so took risks.

SC: Agency pb.

Steve Kaplan: Not an agency pb. CEOs lost loads of personal wealth.

GS: Blames economists. No focus on risk.

CJ: Worries that restructuring may lead to market based mechanism not pricing risk.

Audience: Lack of market discipline is issue, not board. Creditors should impose discipline. Incentives to take one way asymetric bets. Dick Fuld, Stan Neil – made big money 2002-2006. (Steve Kaplan – lost it all). Steve Kaplan – even with downturn, 1980 – today, stunningly successful for almost thirty years. Kaplan – markets get things wrong. Mis-pricing of risk in markets. Bailout to trading arm of banks is not right.

SC: Counter-party risk data being sold to banks, flying off the shelf. (portfolio co).

Steve Kaplan: Lehman collapse – ppl say they were not gambling. They got it wrong. If no guarantee, they would’ve behaved the same.

Bank financing for PE?

SC: £20-£25m for single company is there. Large syndicated deals, not there.

GS: Bank trx volumes collapsed. Fewer borrowers so possible if good story. Increasing lending from untroubled banks from emerging markets (China, Brazil…)

Green shoots in VC & PE as a whole?

SC: Technology ventures – really promising signs. 10 yrs bear market. 2 well priced IPOs recently. (Solarwinds, …). Excellent results in own portfolio. M&A activity. Promising stuff going on. Equity Qs: Will LPs want to buy VC fund? Exit IPO? … Later stage companies (£20/30m revenues), want to build out. Cant go to bank out. Evolving towards developing capital. Lots of experienced managers. Tech cos did not receive much leverage in last ten years.

Key Note III – Aggregate PE returns

(Atoinette Shoar MIT & NBER) researcher with Steve Kaplan

Enormous pro-cyclicality in venture capital (by IRRs, or by multiples). PE asset class is not a hedge vs. public equities. Returns are driven by public markets on exit (public offerings).

There is a huge dispersion in historical fund returns (1980s – 1999).

There is much persistence in private equity fund performance: fund I performance predicts fund III very strongly. Research shows that top funds persist more strongly during recession times. While bottom & medium tercile funds are disproportionally affected by downturn.

There is a concave relationship between fund size & IRR.

IRR positively correlated to the partners-funds size ratio. Returns seem to be correlated to human capital of partners not associate, junior staff, venture partners, etc.

Endowments, private pensions have better access to “good” funds. Currently, top A+ funds are allowing investments in as existing investors writing smaller cheques. Access not an issue at present.

Endowments have best ability to predict performance of next LP funds. While other LPs are not predictive at all (especially banks). Many investors attempt to follow endowments investment decisions.

PE differs mainly because of (1) persistence & heteroginity of returns (2) top quartile funds have lss idiosyncratic risk. => defies many aspects of an asset class.

Ie. PE should not be seen as asset class because of above. But top quartile should be seen as target, not PE as a whole.

Panel III – The Impact of Liquidity on Funds – asset allocation for PE and the growth in Secondaries

Jeremy Coller (CEO Coller Capital), Elroy Dimson (Asset allocation expert, Professor, LBS), Kevin Lecocq (CIO Barclays Wealth)

Jeremy Coller – Secondaries a new market. Largest deal was in 1998, £200m. Surge in secondaries in last five months non existent! Brenlen from Cogent disagrees. Transaction volume should increase like an avalanche but this has not happened yet. How can CIO explain large discounts to trustees. Come Dec 09 EBITDAs fall, and prices fall further. What will trigger the whoosh ? Capital calls.

Moderator – Coller states that 3i bid is speculation! with smile.

Kevein Lecocq – Discussion with clients: gated hedge funds. $60tr in high net wealth WW, down by a third. Fear has been issue: future commitments are more a pb. Would like to see a secondaries market in commitments instead of past investment.

Elroy Dimson – When endowments made investments in PE, thought that capital commitments would not all happen. Observations on liquidity in the small cap sector: (started small cap index in UK 1987, HGSC Index). Great increase in small caps becoming valueless. (2008 greatest in past 30 years). AIM is something of a puzzle: performance has been awful. Cumulative performance of AIM in recent years has been zero. AIM falls short vs HGSC index. Aim market value plumetted from £99bn to …. IPOs have dried up. LT story (50 yrs UK) is more positive for small-caps => Endowments don’t if we are at inflection point or not. (1930s & 1970s).

Kevin – 1930s not the apt analogy for what we are going through. So much cash. 47% in money markets.

Elroy – Anthony Bolton created & Elroy researched equity linked bond. No liquidity. Stay there until maturity

Coller – Secondary market not seen as bottom fishing nowadays. People look after their careers – comes down to the individual. If prevented from investing for two years, might get bored. Could say Private Equity is in a crisis. GPs use divide & rule game on LPs.

US Tech IPOs

This Alt Assets article suggests that the US Tech IPO market is springing back to life.

Initial public offerings are going from strength to strength on Wall Street as a Texas-based software manufacturer became the sixth consecutive US-listed company to record gains on its first day of trading.

Nice Poster!

Found here.

A Rare Technology IPO (Yoox)

The planned take public of Yoox is an example a rare technology IPO in the current economic climate. 360 Capital Partners (listed as Net Partners in the Real Deals article) is co-invested with Balderton in Yoox, an Italian on-line close of season luxury fashion retailer.

Yoox generated turnover of €101m in 2008, a 48 per cent increase on 2007, and recorded core profit of €9.2m, a 101 per cent rise on the previous year.

Balderton has a 25 per cent stake in Yoox, with fellow VCs Kiwi and Net Partners each holding another quarter of the business.

WSJ: Secondary VCs Going Strong

The following article (Not a Down Market for Secondary Venture Capital Funds) is evidence of a buoyant secondary VC market in the US.

Hans Swildens, a founder of Industry Ventures, says the secondary market is now “more active than I’ve ever seen it.” He estimates that 10% of invested capital in the venture-capital business is currently exploring a secondary sale, up from 3% to 4% in normal times

Public Sector IT Spend Bucks the Trend

Richard Holway reports that public sector total IT (including hardware) spend is bucking the trend with a 2009 rise of 2.8% vs a 1.8% decline for the overall industry. The SITS (software and IT services) sub-sector shows a 3.7% increase vs. a 1% decline. The main beneficiaries of the spending rise appear to be local goverment IT outsourcing and shared services programs.

This offers a glimmer of hope for services technology companies with exposure to local government.

Technology convergence: Cisco building servers

Here is a poignant article by TechMarketReview’s Richard Holway on technology convergence: Cisco is on the warpath.

Cisco has announced that it is to sell servers to data centres. Cisco has brought together an impressive array of partners for its ‘Unified Computing System’ – including EMC, Intel, Microsoft, BMC Software and Accenture. It puts Cisco head-to-head with IBM and HP – companies which Cisco also partners with in other areas.