Grove Street Portfolio Shows the Shifting Fortunes of Venture

The year 2007 is a stand-out vintage for venture funds in California Public Employees’ Retirement System’s Grove Street Advisors portfolio, but 2006 is anything but, according to a VCJ analysis of CalPERS’ most recent fund performance report.

The contrast likely reflects the shift in portfolio company fortunes that took hold as technology markets lit up from cloud computing, social networking, software as a service and mobile connectivity. Funds from 2007 on received a lift. Those before did not.

Whatever the cause, the gap is hard to miss. A total of 11 of the 2007 funds in the Grove Street portfolio boast positive IRRs and only three have negative ones, according to the analysis. Cash distributions for these funds now midway through their expected life are limited, but portfolio values are high. Fund choices are anything but the standard fare.

The funds from 2006 tell a different story. Five have negative IRRs and three have positive ones. Many struggle.

A total of 11 of the 2007 funds in the Grove Street portfolio boast positive IRRs and only three have negative ones.

In the accompanying chart (click on the Related Files link on the right), VCJ zerod in on funds from 2006 through 2009 and reported on their IRRs, capital commitments, capital contributions and distributions. Worth noting is that while 2007 is the strongest vintage of the past decade for the Grove Street money managers, 2008 also was good, even if its median IRR trails the median for 2007, the analysis found. Funds from 2006 and before don’t measure up as a group.

As a point of background, CalPERS relies on several fund managers to help it keep tabs on its venture capital portfolio, such as Hamilton Lane, Oak Hill Investment Management and Centinela Capital Partners.

The largest pot of funds is the responsibility of fund of funds outfit Grove Street, which began managing an investment initiative called California Emerging Ventures in 1998.

The effort now has commitments of more than $3.2 billion, contributed capital of more than $2.7 billion and distributions of nearly $2.2 billion.

No new funds have been purchased since 2009, according to the CalPERS report updated to September 2011.

In the past decade, 2006 and 2007 were especially active years, with 2005 also seeing a significant number of investment decisions. Purchases slowed in 2008 and 2009.