Fund performance: PSERS’ vexing bubble era venture funds throw off cash

Venture capitalists have found funds from the late bubble years and their aftermath particularly vexing for making the most of troubled investments.

This is reflected in the Pennsylvania Public School Employees’ Retirement System’s portfolio from the period. The pension manager’s 11 funds from 1999, 2000 and 2001 have struggled as a group. But they have been doing PSERS a favor recently. They have been throwing off cash 12 years or more after they were formed.

The system’s latest portfolio report shows that eight of the 11 funds generated additional cash over the 15 months from September 2011 to December 2012, some times sizeable chunks. The Perseus-Soros BioPharmaceutical Fund, a top fund in the portfolio, distributed almost $35 million.

StarVest Partners’ 1999 fund kicked off another $10.9 million and SCP Private Equity Partners II from 2000 coughed up $3.7 million.

The funds struggled to make IRR improvements and lift their investment multiples over the same 15 months. But they did generate cash.

Overall, the portfolio has mixed results. Five of the funds have positive IRRs and five don’t. PSERS did not report an IRR for one of the funds, Sterling Venture Partners from 2000, but it did have a positive IRR in a March report.

Progress with the portfolio has been slow. During the 15 months VCJ examined, five of the funds saw declines in their IRRs while four saw gains. The other two were unchanged or not reported.

The leaders in the portfolio are LLR Equity Partners from 1999, with an IRR of 21.85%, and Perseus-Soros BioPharmaceutical Fund, a close second at 20.39%. The StarVest fund made a nice gain during the period. KBL Partnership from 1999 also made respectable progress toward trimming a negative IRR.

At the bottom of the list are Novitas Capital II, with a -17.08% IRR, and Lehman Brothers Communications Investors.

In the accompanying table, we list the funds with their commitments, distributions and investments multiples and IRRs from September 2011 and December 2012.