Random Ramblings: Pension Reform & Crescendo Reaction


President Bush yesterday signed a sweeping pension reform bill that should provide a major boost to the fund-raising prospects of both private equity funds-of-funds and hedge funds. Specifically, the law exempts U.S. public pension funds, foreign benefit plans and certain church funds from counting as “benefit plan investors.” This means that a private equity fund-of-funds can now take as much capital as it wants from state pension plans, for example, without being subject to ERISA fiduciary and prohibited transaction rules. 

A few quick caveats: (A) Funds still will be subject to ERISA if 25% or more of their total capital is committed by entities still defined as “benefit plan investors.” (B) Certain public pensions have not yet redefined “benefit plan investors” to meet the new federal standard, and would have to do so before they could participate. (C) This is not terribly important for most direct VC, buyout or real estate funds, since they were already exempted as “venture capital operating companies” or “real estate operating companies.”

*** Tuesday’s piece on Crescendo Ventures was originally prompted by a comment on the SiliconBeat.com blog. So it’s not terribly surprising that the piece itself also has prompted its own flurry of electronic conversation (including from SiliconBeat maestro Matt Marshall). A few quick notes: 

  1. I did, indeed, make a mistake in my analysis of the 2002-2006 portfolio (and have corrected it in the online version, and for an upcoming print article). Crescendo IV has added 19 portfolio companies since 2002, with six being held above-cost. Sincere apologies. 

  2. All but two of Crescendo IV’s active portfolio companies are valued based on a financing event (either the original Crescendo deal, or a subsequent round). Two companies are valued at GP assessment of fair market value. One of those is up, one is down. 

  3. I stand by my assessment that Spreng rediscovered the value of having partners with operational experience. The current team includes GPs Ian Jenks (Oplink, JDS Uniphase), Wayne Cantwell (inSilicon), Peter van Cylenburg (SealedMedia, Transitive, TI) and principal Jeff Yu (Nortel). 

  4. Crescendo did, indeed, engage in arbitration with a limited partner called Starling International Group (United Arab Emirates). Crescendo’s beef was that Starling wasn’t meeting capital calls, while Starling countered that Crescendo had invested in too many companies too quickly (20 deals in 2000), and alleged that the firm was misrepresenting the publication date of certain fund-related documents. It was settled late last year with Starling paying Crescendo’s substantial legal fees, but having its capital commitments distributed to other LPs pro rata. 

*** KKR’s public vehicle yesterday issued its first financial results, showing that its net asset value per share rose to $23.77 from $23.61. This is mostly attributed to cash management-related interest. More interestingly, the fund also disclosed it has given $419 million to KKR funds, made a $200 million co-investment on the VNU deal and invested $195 million into a an undisclosed public security. 

*** The Financial Times apparently thinks my $80 billion LBO ceiling is way too low. It wants KKR, Blackstone et. to begin work on a deal for Microsoft (sub req). 

*** A regulatory filing shows that cancer stem cell company Oncomed Therapeutics recently raised $400,000 in “Series X” funding. It previously had scored $13.9 million in Series A funding. Way to jump ahead… 

*** QuizTime: There has been much (justified) hand-wringing over the absence of women in senior private equity positions. So can you name the new middle-market firm in NYC that is being headed up by a female duo? Hint: You don’t have to be Einstein to figure it out.  

*** Our LinkedIn community is now over 620 readers. It’s also taking up way too much of my time… Have a great weekend.