Panel Participants:
John Crocker, Citigroup Private Equity
Brian Birk, Fort Washington Advisors
Brian Murphy, Portfolio Advisors
William Baumel, RWI Ventures
This session is sponsored by Fort Washington Advisors
Fund of Funds Panel
Q: How attractive and/or viable is a venture fund as an asset class?
John: The market is volatile. You might see annual returns of 7-10 percent annually over the next 10 years. Another trend in many countries is the increasing number of retirees, especially in relation to the number of workers. So more people are becoming conscious of investing for retirement.
Brian Birk: I wish I knew what the spread would be. There are so many factors to consider. One bright spot is the recent rebound in tech spending in the U.S. and in Europe. There's a spark there that's been missing for years.
Brian Murphy: We as a firm have two different answers for that.
Q: What are some of the criteria used to evaluate a venture fund?
Brian Birk: We try to look at the reasoning behind the fluctuations in investment money over time.
Q: Access to the top venture funds is getting more difficult to obtain. How do you evaluate potential investors?
Brian Birk: Again, depending on who your customer is, the portfolio must be crafted to achieve their goals.
Brian Murphy: In the end, people don't care what you're putting into the fund, but rather what you're giving back to them in terms of positive returns. I'd take a good buyout fund any day over a B-market VC fund. It's less volatile and promises more longterm stability, and that appeases the investors more.
Q: What are the top issues that the VC industry faces now?
Brian Birk: Medical technology has been and continues to be an important field for VC investment. People ought to appreciate the longer life cycles of many products now.
John: I want to reemphasize this generational change issue. Some firms are neglecting it and are blowing up. Their staff is shrinking because of the shift in investors' tastes.
Q: What geographical shifts are occurring?
Brian Birk: Many areas are underserved. You'll find great pools of intellectual capital that are not receiving corresponding amounts of venture capital. An ecosystem has evolved where some funds connect only to one or both coasts of the United States.
Brian Murphy: Depending on the state laws involved, a VC firm will have a different experience. So that should be taken into account.
Q: Do you think that firms will go to China and India or try to operate things remotely from the United States and Europe?
John: If there is a legacy of local-local investing and execution, it makes it easier for it to happen. Direct investment in China far exceeds that in India. You have to look at the whole situation. China has a totalitarian regime with no effective legal recourse if the system is against you. India, a democracy, tends to be xenophobic. Fundamentally, the common feeling is that the best VC guys only want to drive two hours to the portfolio company. So it's important to look for local possibilities.
Brian Birk: One nice way to do it is to take your company and start a local one with a name like Acme Japan or Acme Mexico, and give it local leadership that is familiar with the business aspects of that country.
Brian Murphy: The best venture for my company is in India and not China. India is much less risky.
William: In China, it's definitely caveat emptor.
Q: What areas do you hire VC personnel from?
John: My general feeling is if you are hiring someone out of business school, I feel that it's better to go to work for a couple of years at a fund management job, and maybe take a three-month training program. Management consulting or investment banking will allow you to see a lot of situations in a short period of time. Of course you might not get a free weekend for the first five years! So then you could switch to a fund of funds for a more balanced lifestyle.
Q: How do you see the fund of funds industry being affected by analyst firms?
John: Many of the consultants have gotten into the money management business. I don't see that being a big issue. I think there is a role for everyone. Remember, every client has different needs and preferences. There's enough space for everyone.
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