Random Ramblings

I don’t think I say this enough (or perhaps ever), but: Thank you Henry Kravis.

Speaking at the Super Return Conference in Dubai on Wednesday, the KKR chief said:

“All of us need to accept responsibility for the damage done to the free-market system… We’ve moved too slowly to replace management in some situations…. We wait too long hoping they’ll improve but they never do… You have to focus on all the stakeholders. It’s a new thing for us and something we’re really hammering. Long term value is only achieved if growth benefits all stakeholders in a company, from owners to employees, communities and even governments. We are also conscious we are fiduciaries to millions of hard-working men and women and university endowments…Trust must be earned over the long haul and maintained constantly. We have not always adequately explained what we do to the man on the street. Even some of our investors, although happy with the returns we deliver, don’t fully understand what we do and why they should invest with us.”

Words can be cheap, but admitting you have a problem (not a circumstance) is the first step toward recovery.

I remember being a cub reporter in early 2001, when Daddy Thomson (then single) hosted a VC conference in Boston. During Q&A, I asked a group of VC panelists to explain what responsibility they bore for the recent dotcom bubble burst. My hope was that someone would talk about taking immature companies public, or funding an excess of me-too companies (such as all the Pets.com clones). Instead, I got a quintet of blank stares, followed by a mild bit of righteous indignation.

"The private market follows the public market," one of them scolded. "Not the other way around." It was a tired line, and one that no longer held true in the symbiotic capital markets. More importantly, though, it was a lack of self-reflection that probably helps explain why he is no longer a VC. After all, how can you learn from past mistakes if you don’t acknowledge them in the first place?

Here’s to hoping that Kravis is paying more than lip-service, and that others follow his lead.

*** Oh, and for completely different reasons: Thank you J.D. Drew.

*** Things are bleak in limited partner world right now, and expected to get bleaker as FAS 157-compliant annuals roll in. The only bright spot I’ve heard about is a theory that 2009/2010 vintage funds should be strong performers, because they’ll be investing at depressed valuations.

I buy the argument for buyout funds, so long as credit becomes available. For VC funds, however, it may not wash.

Just take a look at Thomson Reuters fund performance data for funds raised in 2002 and 2003. The median IRR for a 2002-vintage buyout fund is 8.2%, while the median IRR for a 2003-vintage buyout fund is 11.9 percent. The median IRR for a 2002-vintage VC fund, on the other hand, is -1.2%, while the median IRR for a 2003-vintage VC fund is 0.9 percent.

 New at peHUB

* First Read, including six degrees of sandwiches.

* Second Opinion, including credit crunch comic strips.

* Kind of a Big Deal: Accel-KKR keeps on buying.

* Kind of a Small Deal: OpenGate Capital buys TV Guide for $1 (no, that's not missing a million).

* Shanghai eyes tax breaks for PE firms.

* China wants even more Blackstone?

* Benchmark Capital is looking at PIPE deals, for the first time in its history.

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