Venture Capital Firms in a Pickle | Chief Investment Officer

Cambridge Associates issued a report showing VC 10-year returns -- considered the most important measurement of the industry -- were negative 3.7% for the period ending March 31.

(July 28, 2010) — Despite slight improvement in initial public offerings and mergers & acquisitions, the venture capital industry is still shaky, which could cause difficulties for venture firms seeking to raise more capital in 2011 or 2012.

Cambridge Associates and the National Venture Capital Association showed in a report released today that 10-year returns for VC fell negative 3.7% for the period ending March 31.

While VC returns for the 10-year period outperformed the Nasdaq’s negative 6.3%, the return was worse than the Dow Jones Industrial Average which was up 2.3% for that period.

But Peter Mooradian of Cambridge Associates said he believes the 10-year returns may have bottomed out, indicating his faith in bight news ahead.

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“We continue to see a decline in the 10-year return number but believe it will bottom-out in the mid-negative single digits over the next two quarters,” Mooradian said in a release. “Sustained improvement in the exit markets should result in the figure returning to break even or modestly positive territory in the second half of 2011.”

During the quarter ending March 31, 2008, the Cambridge Associates LLC U.S. Venture Capital Index fell 1.8%, ending its string of 12 positive quarters. Except for those started in 2006, on average, venture capital funds launched between 1999 and 2007 produced negative returns for the quarter, with the funds started between 1999 and 2001 declining the most, Cambridge Associates said in a release. The index’s three largest sectors, health care, information technology, and software, all fell during the quarter, with health care performing the worst.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Preliminary results of a survey by Capital Market Risk Advisors show US respondents ranked “government changing the rules” as their chief concern for the year ahead.

(July 28, 2010) — Preliminary findings by Capital Market Risk Advisors show 37% of executives at pension funds, sovereign wealth funds, investment management firms and other institutional investors believe the financial reform act signed by President Barack Obama July 21 will make the financial market system safer.

The firm’s 2010 Risk Concerns Survey, which was conducted over two weeks, closing July 20, found that US respondents ranked “government changing the rules” as their chief concern for the year ahead. Market volatility and credit losses tied for their second highest-ranking concern. Additionally, risk due diligence by clients, regulators and rating agencies increased by 54%, 64% and 44% respectively.

“It is disappointing but not surprising the ‘Government Changing the Rules’ remains the #1 concern for U.S. participants for the 2nd year in a row,” said Leslie Rahl, Managing Partner of CMRA, in a statement.

CMRA’s findings were based on risk-related concerns, including risk budgeting, risk appetite statements on limits and liquidity, stress testing. The firm plans to release the full survey August 2.

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Last week, President Obama signed the most powerful financial rules since the Great Depression, asserting that the reform would help foster innovation while ensuring everyone follows the same set of rules “so that firms compete on price and quality, not tricks and traps.” Obama’s signature marks a legislative push that has become increasingly aggressive since the 2008 financial crisis pummeled the US economy. Most of the new rules won’t take effect immediately, as regulators will take months to study the 2,300-page law, named after its main authors, Sen. Christopher Dodd, D-Conn., and Rep. Barney Frank, D-Mass., before drafting rules.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742