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Slideshow: Top And Bottom-Performing Funds Of Louisiana Teachers’

Teachers’ Retirement System of Louisiana saw the value of its private markets investments soar in the year ending March 31, 2011. But it wasn’t enough to lift the portfolio above a key performance benchmark over the long haul.

According to a report prepared by advisor Hamilton Lane, the program, which has reached $8.8 billion in commitments since its start in the mid-1990s, generated a 20.3 percent IRR for the year. Credit just over $620 million in distributions and just over $540 million in unrealized gains as the portfolio rode the economic recovery and a strong exit market.

The private markets portfolio, which includes private equity, real assets, and debt investments, edged out a performance benchmark of S&P 500 plus 400 bps by 60 bps for the year ending March 31. Longer term, over the last 15 years, the 7.7 percent IRR generated by the portfolio remains 310 bps short of the same benchmark, however. At a 7.2 percent IRR the private equity portion of the portfolio, a buyout-heavy pool with $4.8 billion in commitments, also missed the same 15-year benchmark, in its case by 360 bps.

Like many mature private markets portfolios, that of Louisiana Teachers’ boasts both out-performers that have more than doubled the pension fund’s money, as well as laggards that have caused significant losses. A feel-good example on the plus side has been Louisiana Fund 1 LP, a $26.1 million early-stage venture fund that the retirement system was instrumental in getting funded.

According to Joseph F. Lovett, managing general partner, the vintage 2004 fund has already scored two liquidity events out of a 13-company portfolio, and as of March 31 the fund had produced an IRR of 23.3 percent for Louisiana Teachers’. Among the fund’s most promising portfolio companies is Baton Rouge-based Esperance Pharmaceuticals, which recently completed a Phase I clinical trial. Founded to develop cancer treatments, the roughly five-year-old start-up has raised $21 million altogether, including an $8 million round earlier this year led by French pharmaceutical company Sanofi, said Lovett.

One fund in particular jumps out from the list of bottom performers—the vintage 1998 merchant banking fund Credit Suisse First Boston Equity Partners LP. According to the Hamilton Lane report, this $2.7 billion colossus ostensibly lost 75 percent of money invested, registering a -22.2 percent IRR and 0.25x investment multiple. OMG! However, a source close to the fund reveals that the story is not a simple tale of money spent never to return.

After Credit Suisse acquired Donaldson Lufkin & Jenrette in mid-2000, it merged the Credit Suisse merchant banking team into that of DLJ, and rolled over unspent capital from Credit Suisse First Boston Equity Partners into DLJ Merchant Banking Partners III. Between a truncated investment period, management fee draws, and getting its start right before the Internet bubble burst, the original Credit Suisse First Boston Equity Partners never got on track. On the other hand, DLJ Merchant Banking Partners III turned out to be a solid performer (as of December backer Colorado PERA had it generating a 20.4 percent IRR). Investors consider the two funds to be “one investment experience and it was a very good one on a blended basis,” wrote our source in an email. A spokeswoman for Credit Suisse agreed with this account.

Below’s slideshow reveals the top-5 and bottom-5 performing funds in the private markets portfolio of Lousiana Teachers’, by investment multiple, accorrding to the Hamilton Lane report. (Note: All data in the following slideshow are from Louisiana Teachers’; I attempted to reach all five managers of the bottom 5 and note comments where relevant.)

David M. Toll is editor-in-charge of Buyouts Magazine. Follow him @davidmtoll. Follow @Buyouts.

[slideshow]
[slide title=”Top 5″]
[slide title=”No. 5 – Lousisiana Fund I LP”]
Vintage Year: 2004
Multiple: 2.15x
Since Inception IRR: 23.30 %
Investment Type: venture capital
Capital Committed: $10 million
[slide title=”No. 4 – Warburg Pincus International Partners LP”]
Vintage Year: 2000
Multiple: 2.16x
Since Inception IRR: 14.41%
Investment Type: special situtations
Capital Committed: $75 million
[slide title=”No. 3 – Carlyle Partners III LP”]
Vintage Year: 2000
Multiple: 2.21x
Since Inception IRR: 23.21%
Investment Type: corporate finance/buyout
Capital Committed: $100 million
[slide title=”No. 2 – Apollo Investment Fund V LP”]
Vintage Year: 2001
Multiple: 2.32x
Since Inception IRR: 38.55%
Investment Type: corporate finance/buyout
Capital Committed: $100 million
[slide title=”No. 1 – Doughty Hanson & Co European Real Estate Number 1″]
Vintage Year: 1999
Multiple: 2.52x
Since Inception IRR: 29.45%
Investment Type: real estate
Capital Committed: $75 million
[slide title=”Bottom 5″]
[slide title=”No. 5 – Hicks, Muse, Tate & Furst Equity Fund IV LP”]
Vintage Year: 1998
Multiple: 0.62x
Since Inception IRR: -7.68%
Investment Type: corporate finance/buyout
Capital Committed: $400 million
[slide title=”No. 4 – Rockpoint Real Estate Fund II LP”]
Vintage Year: 2005
Multiple: 0.61x
Since Inception IRR: -18.04%
Investment Type: real estate
Capital Committed: $75 million
[slide title=”No. 3 – Heartland Industrial Partners LP”]
Vintage Year: 2000
Multiple: 0.44x
Since Inception IRR: -9.04%
Investment Type: corporate finance/buyout
Capital Committed: $100 million
[slide title=”No. 2 – Sterling American Property V LP”]
Vintage Year: 2006
Multiple: 0.41x (see comment below)
Since Inception IRR: -25.59% (see comment below)
Investment Type: real estate
Capital Committed: $50 million
Comment: Co-sponsor Sterling Equities sent the following statement: “The returns reported by TRSL are not consistent with what we believe is the fair market value of the assets of Sterling American Property V or what we have reported to our investors is the fair market value of such assets.  We believe they are calculating their returns based upon the audit financials, which are reported on a cost basis, not a value basis.  [Sterling Equities is a fully integrated real estate operating company with almost 40 years of experience.  Since 1991, it has invested in real estate primarily through its Sterling American Property funds, where it has invested in 161 investments, valued at over $4.4 billion.]  The net IRR of the first 4 Sterling American Property funds range from high single digit returns to high teen returns, in-line with the risk profile of the investments.   While the projected returns for the 2006 Sterling American Property V fund are not expected be in line with those of the prior Sterling American Property funds, given the economic environment of 2008-2010, Sterling Equities continues to believe that the returns for its 5th fund will be respectable and are currently projecting to return in excess of 85% of their investors’ capital investment.”
[slide title=”No. 1 – Credit Suisse First Boston Equity Partners LP”]
Vintage Year: 1998
Since Inception IRR: -22.20% (see comment below)
Multiple: 0.25x (see comment below)
Investment Type: corporate finance/buyout
Capital Committed: $90.9 million
Comment: Poor performance is due in part to truncated investment period. Unspent capital for this fund was rolled into DLJ Merchant Banking Partners III, which went on to be a strong performer.
[/slideshow]