John,
When considering the VC unit, one issue an investor might consider is the scale of the operation and how scale affects performance.
The WSJ ran a headline story yesterday about some problems at Technology Crossover Ventures. As set forth in the article, they have many dot.com and troubled companies in their portfolio. Furthermore, many of these companies have dubious business models or technology and TCV's dilemma is just what to do with them. Give them more money?
TCV has 100-plus companies in their portfolio, and have a new $1.6 billion dollar fund. Compare that with the $150 million at LDP and its 14-18 investments and consider how the differences in scale might affect performance.
IMO, problems at TCV and similar VC companies are much greater than at LDP and to some extent should cause a disconnect when attempting to apply the same reasoning to LDP....the scale of their operation simply does not permit them to be as selective, which in turn significantly reduces their performance, and also makes them much more dependent on the tone of the general IPO market.
To illustrate the point, over time would Peter Lynch get better returns from managing $100 million dollars in a few select investments or $2 trillion necessarily spread across many more investments?
LDP typically maintains a portfolio of 15–20 investments in private equity. If they don't like a business model or a company's technology, they simply pass. How does it work in practice? Look at the performance just this year. In perhaps the worst IPO market in quite some time, LDP has been extraordinarily successful. Just how dependent are they on a raging hot IPO market?
IMO, it is this issue of scale that distinguishes. So, if indeed the Pru analyst is "befuddled" at CMGI's holdings, and TCV’s 100+ holdings are impossible to value....it does not necessarily follow that LDP's handful of holdings should be similarly viewed.
I suppose this point is arguable, but at the end of the day and whether you can accurately quantify it, IMO it is one reason LDP will offer superior returns over time.
Best regards.
Also, one other note, the NUFO investment I believe was made late in 1999. It has been less than one year since the investment was made, and so it has also been with many others. So, the 3 or 4 year time-frame you are using as an example in your comments is IMO a little too long. |
