Explaining Southern California's economy

CalPERS strikes fear in the hearts of private equity firms

Max Whittaker/Getty Images

A sign stands in front of California Public Employees' Retirement System building in Sacramento.

Yesterday, CalPERS, the huge California public employees pension fund, announced some good news: the $248 billion colossus made a 13.26 percent return on its investments in calendar year 2012. They're dancing with their spread sheets in Sacramento, because that's a vast improvement over the 2012 fiscal year performance, which ended on June 30.

How bad was the fiscal year performance? One percent.

Yep, one percent. It was bad.

CalPERS has targeted a rate of return for its investments of 7.5 percent — a target that it reduced from 7.75 percent last year. So that 13.26 percent return, if it holds up through the fiscal year, will go a long way toward helping CalPERS make up what it lost last year.

However, as CalPERS Chief Investment Officer John Dear pointed out and Pensions & Investments reported, that 13.26 percent wasn't as thrilling as it sounds. It was "117 basis points below the retirement system's custom benchmark for the calendar year."

Read More...

How big should venture capital be? Try less than $25 billion

Vincent Mallet

AFP/AFP/Getty Images

A Palo Alto startup. You can still get funding, but if you don't succeed rapidly after early stage investment, you could be in trouble.

Earlier this week, the National Venture Capital Association and Thompson Reuters assessed the current state of the VC fundraising landscape. The verdict is that VC has "settled in a 'new normal,'" with the total number of funds decreasing while the total amount of money raised went up in 2012.

That performance lived up to expectations from earlier this year.

The total raised was $20.6 billion, which the NVCA suggests is the "Goldilocks" number: Not too big, not too small — but just right. There's a sense in the VC world that it's critical to keep the total amount of money raised under $25 billion.

That much money flowing into VC on an annual basis means that entrepreneurship and innovation can be funded in an optimal manner, without too many bad companies and bad ideas getting money, just because VCs need to put their funds to work.

Read More...

Why was CalSTRS investing in gun company linked to Newtown massacre?

California State Teachers Retirement System

CalSTRS

The headquarters of the California State Teachers Retirement System in Sacramento. Like many big pension funds, it's increasingly invested in a riskier manner to meet return targets. This led to its investment with Cerberus Capital Management and the gunmaker that built the weapon used in the Newtown massacre.

Just to lay it out for you:

• Adam Lanza, a disturbed young man, killed 20 children, his mother, and six other adults in Newtown, Connecticut on Friday before killing himself

• He used a "Bushmaster" automatic rifle, a civilian variation of the AR-15, a military rifle that traces its heritage to the M-16

• The company that owns Bushmaster, Freedom Group, is owned by Cerberus Capital Management, a prominent private equity fund that...

• Raised at least $500 million from the California State Teachers' Retirement System (CalSTRS) for a fund that invested in Freedom Group.

It's one of those gruesome loops – the serpent eating its own tail – that can only result from the intersection of private-equity, the huge pension funds that provide private-equity with money, and the imperative for funds like CalSTRS to hit their annual return targets.

Read More...

Venture capital has shifted to funding business software

CFF VC Panel

Venture Capital in Southern California panel, moderated by the DeBord Report's Matt DeBord. These guys may be looking for different types of startups to invest in.

Fred Wilson, in typical clear and direct fashion, nails the shift as venture capitalists withhold additional rounds of funding from consumer-web companies and pivot toward the search for "enterprise" opportunities — ways to invest in software for businesses, not for the masses. Here's Fred:

[I]nvestors have moved from consumer to enterprise. there is a large pool of money in the venture capital asset class that is opportunistic, momentum driven, and thesis agnostic. this pool is driven largely by the public markets. this pool of capital was "all in" on consumer web/social web in the 2009-2011 time frame. it drove a lot of activity throughout the venture capital markets because each layer of the VC stack...needs to be aware of what the next layer up wants to fund. when the momentum/late stage wanted web/social, the layers below gave them web/social. Now that the momentum/late stage wants enterprise, we should expect the layers below to give them enterprise.

The combination of these three factors is making it harder for consumer internet companies (web and mobile) to get funding.

Read More...

Can we expect to see more of the Winklevoss twins in LA?

America's Tyler Winklevoss and Cameron W

AFP/AFP/Getty Images

Tyler Winklevoss and Cameron Winklevoss at the start of the men's pair final during the 2008 Beijing Olympic Games in Beijing. The twins have started a venture capital fund and are looking to establish an office in L.A.

Cameron and Tyler Winklevoss — the Harvard-grad Olympic-rowing twins who infamously jousted in court with Mark Zuckerberg over who really had the core idea for Facebook — have begun the post-Facebook lives. Sort of. Their post-Facebook lives are being funded by an estimated $65-million cash-and-stock settlement the received from suing Zuckerberg and Facebook. 

With that dough, they're started a venture-capital fund, Winklevoss Capital, and as the Wall Street Journal reports, joined forces with their old Harvard classmate Divya Narendra on an initial $1-million investment in an semi-exclusive stock research site called SumZero

But they might also be spending some time apart. The Winklevii just bought a house in Hollywood last month for $18 million, reported Canyon News:

Tyler Winklevoss will remain in the 8,000 square foot home as they launch the West Wing of their venture capital company.... Cameron will remain mainly in New York City, where they have signed a five-year lease for their company's office.  

The two-story modern home with a jetliner view of Los Angeles was recently constructed as the house that had been on the lot before was bulldozed and modified. It is reported that the Winklevoss twins are in Los Angeles because they believe it is currently a great place for techies instead of Silicon Valley, where many firms are located. 

Read More...