Great Party, Troubled Market

Last night I attended Highland Capital Partners’ 20th anniversary party, which commandeered the entire Boston Science Museum. Quite the bash, including a 3-on-3 basketball tournament for Highland portfolio companies (won by O Beverages), the Celtics championship trophy (I touched it), Celtics cheerleaders (I didn’t touch them), CEOs, limited partners, local politicians and former Melrose Place star Andrew Shue.

Perhaps the best VC event I’ve ever been to in Boston, even though it wasn’t for area VCs (only one I saw was Howard Anderson, and he’s quite explicitly not a VC anymore).

Very ebullient crowd on the surface, but things were pretty different when it came to one-on-one conversations. These were all off-the-record, but it’s fair to say that I heard things that sound like a step beyond the tip of a glacier. Not just general credit concerns, but deals that have collapsed at the last minute due to pulled financing, new funds that can’t close because of cancelled commitments, LPs trying to quickly reduce asset class exposure, bankruptcy lawyers gearing up for a flood of defaults and more.

Venture capital firms like Highland may weather the coming storm better than will buyout firms, since the former almost never use leverage. But I’m really growing more and more pessimistic by the day about both sides of the private equity coin (as if you couldn’t tell by now). Some of these troubles are just so fundamental, particularly when it comes to LPs. For example, what if one of your conerstone investors is a municipal or state pension for a municipality or state that is having big problems servicing its debt? Or is an institutional investor who’s seen its overall portfolio value shrink so much that it’s now breached its private equity allocation? Or is a sovereign wealth fund that only got into the asset class two years ago, and may not have the stomach to expand a portfolio that is red without legacy black.

Before leaving last night, I wandered up to the Museum’s top level for a bird’s eye view of the happenings below. Almost everyone in that room (myself included) will be okay, when compared to people who are truly suffering. But I couldn’t help but wonder if this was the last big celebration that I was going to see for a while…