The venture market may look like a train wreck, but the recent experience of Abbott Capital Management shows institutional investors are still willing to buy tickets and climb aboard.
New York-based Abbott closed on a $730 million private equity fund-of-funds in July. It was originally set to top out at $500 million, but Abbott Capital Private Equity Fund IV (Ace IV) found strong interest in both the United States and abroad.
“I think compared to a few years ago, the consolidation has begun,” says Jonathan Roth, a managing director for Abbott, which has $5 billion under management. “The market focused on a few of us that were institutionally qualified.”
The new fund puts Abbott in the company of other funds of funds whose offerings have been oversubscribed in recent months, firms like Adams Street Partners, Adveq Management and Montagu Newhall Associates.
“The current market downturn is causing severe problems for new entrants in the FoF business-the non-brand names with poor distribution networks that can’t somehow differentiate themselves from the pack,” says Anthony Romanello, head of investor services at market researcher Venture Economics (publisher of VCJ).
Abbott’s 16-year track record separates the firm from the crowd, Roth says. “If you’ve got a three- or four-year track record, you’re always going to live with your 1999 and 2000 vintage years,” he notes.
Abbott plans to commit its latest fund over the next two to four years. The fund started investing after its first close in July 2001. To date, Ace IV has invested $120 million in five funds. Abbott expects to invest in a total of 20 to 30 partnerships.
Roth says the firm divides its investments evenly between venture capital funds, buyout funds and special situations, including mezzanine funds, narrowly-focused sector funds and blended private equity funds like Warburg Pincus VIII.
Abbott earmarks 15% of the fund’s assets for overseas investments and 20% for eight to 12 direct investments.
Ace IV may invest 15% of its assets in secondary interests of fund portfolios. When Abbott does secondaries, it most often buys a fund it owns from a prior deal.
Abbott hasn’t changed its allocation strategy. “Two years ago, the first question we’d get would be, Why are you bothering with private equity and special situations?’ Now, it’s, How much tech exposure do we have?'” Roth says. “One West Coast LP told me [two years ago], All I want to do is back my truck up to Sand Hill Road and give them all my money.’ I don’t know where he is today.”
Even though the firm plans to stick to its asset allocation, it’s too hard to predict when each of the buckets will be filled. “The venture funds we are most familiar with-the ones who were in our last fund-probably won’t come back into the market until late-2003 or 2004,” Roth says.