CalPERS report shows most Israeli funds still losing

The Carmel I Fund again had the best results, with a return on investment of 1.28.

Just one month ago, the California Public Employees' Retirement System (CalPERS) board of managers announced that it would reduce its allocations to venture capital funds by 85% in the coming years. For Israeli venture capital firms, which saw CalPERS as a regular source of investment in their funds, the news meant that there was little chance that CalPERS would invest in the new funds the Israeli firms would try to raise in the next two years.

CalPERS's quarterly report on the performance of Israeli venture capital funds continues to show negative returns by most funds that were raised in 1999-2004. This picture at least partly explains CalPERS's skepticism about the worthwhileness of continuing to invest in the sector.

The Israeli firms in which CalPERS is invested in - Pitango Venture Capital, Carmel Ventures, Gemini Israel Funds, Israel Seed Partners, Jerusalem Venture Partners (JVP), Apax Partners Israel, and Giza Venture Capital - generated middling results. The Carmel I Fund, raised in 2000, received $7.1 million from CalPERS. According to the report, this investment is currently worth $9.1 million, reflecting a return on investment of 1.28, and an average annual internal rate of return (IRR) of 5.6%.

In contrast, the Carmel II Fund, raised in 2004, had a negative return reflecting a 15% write-off on the investment, and an average IRR of 4.7%.

No more returns from exits

Venture capital funds raised more than a decade ago are close to the end of their lives. Write-offs are generally unofficial, and only on paper, before the investment is liquidated. But in the case of old funds, the chances are that the investors - CalPERS in this case - will by now see no returns on potential exits, mainly because they will simply take the money out again, or because the investment made by the fund in a company has been written off.

Other Israeli funds with positive returns are the JVP IV Fund, raised in 2001, which had a return on investment of 1.27, and an annual IRR of 3.6%; and the Pitango IV Fund, raised in 2004, which had a return on investment of 1.07 on an investment of $20 million, and an annual IRR of 1.9%. The fund's performance was slightly better than in the preceding quarters.

Another Israeli firm is Markstone Capital Partners Group LLC, launched in 2004, in which CalPERS invested as a buyout fund. Its return on investment was unchanged (a multiple of 1 on the investment), and its IRR was 1.5%.

Most Israeli venture capital funds still have negative performances. CalPERS invested $5 million in the Apax Israel II Fund in 1999. The investment is now worth $3.4 million, giving a 32% write-off and negative return on investment of 8.2%. The performance of the Gemini III Fund, raised in 2000, reflects a write-off of 10%, and a return on investment of -2.6%. The figures show a write of 58% on CalPERS's investment in Israel Seed, and a return on investment of -14.6%. The write-off on the investment in the Pitango III Fund is 21%, reflecting a return on investment of -3%. The paper write-off on the Giza IV Fund, raised in 2005, is 20% of the investment, reflecting a return on investment of -7.1%.

Published by Globes [online], Israel business news - www.globes-online.com - on December 26, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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