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– Forbes’ Very American ‘Midas List’ of Venture Capitalists
– U.S. Tech Stocks are Up, but That’s Not Helping VC Valuations
– Listed PE Firms are “Misunderstood” by Stock Investors
– PE’s Confidence in Asia Remains High
– New Play Turns PE Into High Drama
– PE KeyTrends Quick Question Results
FORBES’ ANNUAL ‘MIDAS LIST’ IS OUT AND IT’S, WELL, VERY AMERICAN. At a time when numerous industry pundits say the most attractively priced venture capital opportunities are outside of the United States, it’s noteworthy that only 12 of the individuals on Forbes’ high-profile list of the “100 best venture investors” are non-U.S. based, with 11 concentrated in China. At number 17, the only European-based investor is Yuri Milner, partner at Moscow-based Digital Sky Technologies. The list is so American and so very un-European largely because, as Forbes says, “Midas provides a five-year lookback” at portfolio gains. With Europe the investment area of choice at the moment for many venture capitalists – in large measure due to the perception of high pricing in the U.S. and China – it’s entirely plausible that with time the home base of many on the Midas list will shift. Another point of interest: only five women make this year’s list, led by Kleiner Perkins Caufield & Byers’ general partner Mary Meeker at number five.
U.S. TECH STOCKS ARE UP, BUT THAT’S NOT HELPING VC VALUATIONS, notes CNBC, citing estimates from John Somorjai, executive vice-president of corporate development and ventures at cloud computing major Salesforce.com. With relevant indices up some 16 percent since a February 8 low, U.S. tech stocks have recovered much of the ground lost early this year, “but the damage in the private market has been done.” The cash-flow multiples “investors are paying for late-stage software investments have dropped between one-third and 40 percent since the frothy days of 2015.” According to Somorjai, “that means companies at the later stages are raising money at six to nine times forward revenue,” down from 10 to 12 times in the first half of 2015. “People are taking a more realistic view on the long-term,” says Somorjai.
LISTED PRIVATE EQUITY FIRMS ARE “MISUNDERSTOOD” by stock investors, at least that’s the position of industry executives, writes the Financial Times. Of the eight firms that listed their shares between 2007 and 2012 – Fortress, Blackstone, Och-Ziff, KKR, Apollo, Carlyle, Oaktree and Ares – there are six “below their initial public offering prices.” The main “grievance” of all listed outfits, accentuated by a “recent sell-off,” is that they believe stock investors do not understand the “massive” cash generation of carried interest, that’s the 20 percent of profits PE groups are paid after fund investors receive a preferred return averaging 8 percent annually. “Even in the best of times” analysts “put a single-digit multiple” on carried interest because of perceived volatility. “Right now,” the PE firms “believe the multiple is essentially zero.” If they’re right, stock investors are passing up exceptional yields. Based on stock prices and trailing earnings, Blackstone, Carlyle, KKR and Apollo yield between 9 percent and 14 percent annually.
PE’S CONFIDENCE IN ASIA REMAINS HIGH, DESPITE TROUBLES IN CHINA. At a time when many are bailing out of Asian investments due to falling stock markets, plunging currencies and slowing growth in China, KKR’s plan for a record-sized $9 billion fundraising target for its next regional fund attests to private equity’s conviction that value is a byproduct of volatility. According to Bloomberg, the fundraising goal “is predicated on the strong deal flow” KKR expects from Asia “over the next five years.” If the new vehicle hits its target, it will surpass KKR’s second Asia fund, which closed in 2012 on a record $6 billion. That fund is generating a 30.4 percent net return on invested capital, according to Palico’s PE marketplace.
THE NEW PLAY, “DRY POWDER,” TURNS PE INTO HIGH DRAMA. THE NEW PLAY, “DRY POWDER,” TURNS PE INTO HIGH DRAMA. Barron’s reports that private equity has taken center stage at the Public Theater in New York City with a high-powered cast led by Claire Danes of “Homeland” fame playing “a cold-blooded managing director at a smallish, unnamed buyout shop looking to burnish its reputation after a spate of bad publicity.” Directed by Thomas Kail, the director of the hit Broadway musical “Hamilton,” Barron’s calls it a “3x for the soul,” while the Public Theater compares it to dark classics like “Death of a Salesman” and “Glengarry Glen Ross.” Given those descriptions, the play touches on universal truths, but it’s unlikely to burnish private equity’s reputation.
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