Israeli venture capital funds Pitango, Gemini, Apax Israel, Israel Seed, JVP and Carmel, among the most prominent funds in Israel's venture sector, have collectively written off $212 million over the past three years. This constitutes about one-third of their collective portfolios, as they have invested about $640 million in startups.
The California state employees pension fund CalPERS issued an investment report over the weekend after repeated demands from members and the press, and the report offered a first look at the usually secret investment reports of private Israeli venture capital funds in which CalPERS is invested.
The report is based on fund managers' reports through September 30, 2002. Fund managers guard the confidentiality of the figures zealously, some, apparently for good reason.
CalPERS, the world's largest pension fund, has invested in Israel since 1999 via consulting firm Grove Street.
Of the $3 billion CalPERS has invested in venture capital and investment companies, it has promised $25 million to the six Israeli funds. These commitments include $7.5 million to Jerusalem Venture Partners, $5 million to Pitango, $5 million to Apax Israel and $2.5 million to Gemini, Israel Seed and Carmel.
Of those sums, a total of $11 million have been invested to date. According to the report, and calculation of the relative share of each fund based on the funds' declared assets under management, apparently Israel's biggest fund, Pitango - managed by Hemi Peres and Rami Kalish - has written off the highest sum.
Pitango raised $500 million in 2000, and wrote off $66 million in September 2002 of the $225 million it had invested.
Nonetheless, relative to other funds established in 2000 and the scope of its assets under management, its performance is considered even for the American venture sector, as only one-third of the capital invested was written off.
JVP, which raised a $405 million fund in 2001, has seen its portfolio shrink by $36 million.
Of the Israeli funds, Carmel and Israel Seed reported the largest "on paper" losses. The report reveals that Carmel has written off $36 million of the $121 million it has invested. Israel Seed has written off $36 million of $85 million from the $200 million it raised in 2000.
The report presented the performances of 200 private venture capital funds in the U.S., Europe and Israel, in which CalPERS has invested. Some of the Israeli funds' performances placed them among CalPERS better venture capital investments relative to the year each fund was established (its vintage) and its absolute performance.
Gemini 3 tops Israeli VCs
Gemini 3, which raised $200 million in 2000, is the best performing Israeli venture fund in the CalPERS portfolio, writing off just $19 million of $90 million in investments.
These figures place the fund in 10th place among the 50 Israeli and U.S. venture funds in which CalPERS invested in 2000. Pitango is 20th on the list.
Gemini and Pitango are the only ones of the six funds that posted better than average returns against funds of the same vintage. The list includes several funds considered among the best in the U.S. and the CalPERS report offers the first revelations of their actual performances. Among the vintage 2000 funds in which CalPERS invested, NEA placed sixth, Battery placed 21st, Lightspeed placed 30th, Sevin Rosen placed at 31, and two Israeli funds, Israel Seed which placed 33rd, and Carmel which placed 36.
Among vintage 1999 funds, Apax Israel is ranked 10th of 22 funds, writing off just $22 million of its investments as of September.
CalPERS is considered one of the most prominent institutional investors in the world, investing in venture capital funds already considered high quality.
Until recently, the mammoth pension fund allocated 6 percent of its managed capital - $130 billion - to venture investments and private investments.
Clint Harris, managing partner at CalPERS gatekeeper Grove Street, says the fund plans to increase that allocation to 7 percent including investment in Israel.
Despite high write-off rates for vintage 2000 and 2001 funds, the Israeli funds performance in the CalPERS report as not as bad as many in the sector had expected, particularly in contrast to the 70 percent drop in the Nasdaq's market capitalization in that period.
The Israeli venture sector estimated over the past year that funds established in 2000 would be forced to write off half the value of their portfolio, while the average write-off in the six funds was just 34 percent.
Nonetheless, it should be noted that revaluing venture portfolios is a subjective process in which fund managers have discretion, so the write-offs reported to date may not be the entire story and those portfolios may include more startup investments that will later need to be written off.
CalPERS does not consider the performance of the youngest funds complete, as the natural maturation period for a venture investment is 5-7 years and fund lifespans are usually 7-10 years.
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