May 22, 2018

Axios Pro Rata

By Dan Primack
Dan Primack
Top of the Morning
Source: Giphy

There are only three things in life you can count on: Death, taxes and CalPERS doing strange stuff with private equity.

  • For the uninitiated: CalPERS is the California Public Employees' Retirement System, which is the country's largest public pension with around $350 billion in assets under management. Of that, around $25 billion is currently invested in private equity.

Over the years, CalPERS management has treated its private equity strategy like a toddler treats a Netflix queue. Let's try this. No, let's try that. I don't even know what that is, but it sure looks cool.

The latest plan is to create a quasi-independent organization called CalPERS Direct:

CalPERS Direct would be governed by a separate, independent board to advise on allocation and longer-term capital market perspectives. It would consist of two separate funds. One would focus on late-stage investments in technology, life sciences, and healthcare, and the other on long-term investments in established companies. These would operate alongside CalPERS' existing private equity structure that typically invests in co-mingled private equity funds.  

The mastermind here is CalPERS chief investment officer Ted Eliopoulos, who resigned just in time to not oversee its execution. If that's not a big enough red flag, here are more:

  1. The comp is supposed to be Canada's big public pensions, which have spent the past decade building direct PE investing platforms and deemphasizing indirect investments with outside managers. But those Canadian systems generally maintain oversight rather than creating independent boards. Or, put more simply: CalPERS is creating an indirect model for direct investing, which seems to largely defeat the point.
  2. If a goal is to lower fees, it might be tough given that CalPERS Direct will pay "market rates" to its investment professionals (which also could create grumbles among those dozens of PE staffers still on the CalPERS payroll at below-market rates).
  3. If a goal is to put more money to work, this could be easily accomplished by reigniting commitments to third-party funds — something CalPERS used to do tons of but then slowed way down in the name of negotiating better deals and simplifying the portfolio. I bet SoftBank Vision Fund II could handle a big slug.
  4. Late-stage and Buffett-style strategies are the two hottest trends right now in private equity, which likely means it's a questionable time to launch new programs that won't be ready until the first half of 2019. In fact, CalPERS has a distressing private equity history of diving in near market tops and exiting near market bottoms (see: Capital, Venture).
  5. There was talk last fall about CalPERS outsourcing all or part of its private equity program to a firm like BlackRock. A spokesman tells me that such discussions are "not completely off the table, but on a separate track." Sounds like CalPERS wants a bit of wiggle room in case the new plan falters.

Bottom line: It's certainly possible that CalPERS Direct will improve returns. But stronger odds are that it won't, and that CalPERS will again shift strategy before any of us — or its 1.9 million members — know the ultimate results of what is supposed to be a long-term play.

Source: Giphy

Sony has agreed to acquire a 60.2% stake in EMI Music Publishing for approximately $2.3 billion from Mubadala Investment Co. Sony already held a 30% position in EMI.

  • Why it's the BFD: Because this makes Sony the world's largest music publisher.
  • Acquired assets: 2.3 million songs, including catalogs from artists like The Beatles, Queen, Sia and Kanye West.
  • Bottom line: "The purchase staves off what could have been a contentious bidding process, should Mudabala have opened up its investment share to other potential buyers. According to sources, Warner Music Group owner Len Blavatnik was hot on the property, as were other music companies." — Variety
Venture Capital Deals

🚑 Iora Health, a Boston-based primary care provider that focuses on Medicare patients over 65, raised $100 million in Series E funding from .406 Ventures, Devonshire Investors, F-Prime Capital, Flare Capital Partners, GE Ventures, Humana, Khosla Ventures, Polaris Partners and Temasek.

SafetyCulture, an Australian maker of a health and safety mobile app, raised A$60 million in new funding led by Tiger Global Management.

🚑 Honor, a San Francisco-based home care company for older adults, raised $50 million in Series C funding led by Naspers Ventures.

NewsDog, an Indian personalized news aggregation app, raised $50 million in Series C funding. Tencent led, and was joined by Danhua Capital, Legend Capital and DotC United Group.

TradingView, a New York-based provider of a social network and charting software for traders, raised $37 million in Series B funding. Insight Venture Partners led, and was joined by Jump Capital and DRW Venture Capital.

Tango Card, a Seattle-based provider of digital rewards and incentives to enterprise customers, raised $35 million in growth equity funding from FTV Capital.

🚑 Heal, a Los Angeles-based provider of doctor house calls, has raised $20 million in new funding. Bascom Ventures, Inflection Capital, IRA Capital, RLJ Equity Partners and Trans-Pacific Partners were joined by return backers like Fidelity Contrafund and Lionel Richie.

Rebbl, a maker of coconut milk-based “elixirs and tonics,” raised $20 million in funding led by Cavu Venture Partners.

⛽ StoreDot, an Israeli battery startup focused on quickly charging electric vehicles, raised $20 million from BP Ventures.

Realeyes, a London-based computer vision startup that aims to understand a person’s emotional responses to digital videos, has raised $16.2 million in Series A funding. DFJ Esprit led, and was joined by Karma Ventures and Harbert European Growth Capital.

Bestow, a Dallas-based provider of digital analytics for the term life insurance market, raised $15 million in Series A funding. Valar Ventures led, and was joined by return backers NEA, Core Innovation Capital, 8VC, and Morpheus Ventures.

🚑 Nanit, an Israeli maker of a baby sleep monitor, raised $14 million in Series B funding. JVP led, and was joined by return backers Upfront Ventures RRE Ventures, Vulcan Capital and Vaal Investment Partners.

CREXi, a Venice, Calif.-based commercial real estate transaction platform, has raised $11 million in Series A funding from Jackson Square Ventures, Manifest Investment Partners, Lerer Hippeau, Freestyle Capital, TenOneTen Ventures and Founder Collective.

Terminal, a Toronto-based startup that helps companies “build and scale remote technical teams,” raised US$10 million in Series A funding from Lightspeed Venture Partners, Thiel Capital, Kleiner Perkins, Atomic, Craft Ventures and Jerry Yang.

Decent, a Sausalito, Calif.-based stealth startup that’s applying blockchain to healthcare, raised $8 million from firms like Foundation Capital, Menlo Ventures, Lux Capital, DCG, Maverick Ventures and Abstract Ventures.

🚑 Luma Health, a San Francisco-based provider of healthcare patient-provider communications solutions, raised $6.3 million in Series A funding led by USVP.

Koru Kids, a London-based training and placing platform for afterschool nannies, raised £3.5 million co-led by Forward Partners and Albion Capital.

Indee Labs, a San Francisco-based developer of gene therapy manufacturing hardware, raised $2.6 million in new seed funding led by Founders Fund.

MainStem, a Seattle-based cannabis e-commerce startup, raised around $2.2 million in Series B funding led by Merida Capital Partners.

🚑 Insightin Health, a Gaithersburg, Md.-based developer of a customer relationship management system for health plan, raised $2 million in seed funding led by HCCM.

🚑 Scioto Biosciences, an Indianapolis-based microbiome therapeutics delivery startup, raised $1.8 million in Series A funding from BioCrossroads, Elevate Ventures and Rev1 Ventures.

Selected, a New York-based online platform that helps teachers find jobs, raised $1.2 million in seed funding from Propel Capital and Kapor Capital.

Private Equity Deals

The Blackstone Group has agreed to acquire Bethesda, Md.-based hotel REIT LaSalle Hotel Properties (NYSE: LHO) for $3.7 billion, or $33.50 per share. This beats out a rival bid from Pebblebrook Hotel Trust (NYSE: PEB).

L Catterton Asia has agreed to acquire a 10% stake in Future Lifestyle Fashions, a listed Indian branded fashion company.

🚑 Varian Medical (NYSE: VAR) said it will not submit a new bid for Australian liver cancer drugmaker Sirtex Medical (ASX: SRX), after its $1.3 billion offer was topped by a $1.4 billion offer from China's CDH Investments.

Public Offerings

🚑 ElectroCore, a Baskin Ridge, N.J.-based maker of non-invasive nerve stimulation devices for treating migraines, filed for a $75 million IPO. It plans to trade on the Nasdaq (ECOR) with Piper Jaffray as lead underwriter. Shareholders include Core Ventures and Merck Global Health Innovation Fund.

Liquidity Events

Adobe (Nasdaq: ADBE) has agreed to buy Magento Commerce, a Campbell, Calif.-based e-ommerce platform, from Permira for $1.68 billion.

Arlington Capital Partners has agreed to sell Polaris Alpha, a Frederickburg, Va.-based provider of mission-critical solutions to the U.S. defense and intelligence communities, to Parsons Corp.

Roper Technologies (NYSE: ROP) has agreed to acquire PowerPlan, an Atlanta-based provider of corporate performance management software, from Thoma Bravo for $1.1 billion.

TransUnion (NYSE: TRU) has agreed to acquire Iovation, a Portland, Ore.-based provider of device-based consumer authentication and fraud prevention services. Iovation had raised nearly $17 million in VC funding from firms like First Round Capital, Intel Capital, Sapphire Ventures, European Founders Fund and EPIC Ventures.

Yageo (Taiwan: 2327) has agreed to buy Pulse Electronics, a San Diego-based provider of electronic components and modules, from Oaktree Capital Management for $740 million.

More M&A

Anbang Insurance Group has put its Century Securities brokerage business up for sale with plans to fetch at least $560 million.

Emirates NBD has agreed to buy Turkish lender Denizbank from Russia’s Sberbank for $3.2 billion.

HNA Group has held talks with prospective buyers of Ingram Micro, an Irvine, Calif.-based IT components distributor that HNA bought in 2016 for more than $6 billion, per Reuters.


BC Partners has launched a real estate investing group that will be led by Stéphane Theuriau, former CEO of France’s Altarea Cogedim.

Madrona Venture Group has closed its seventh VC fund with $300 million.

It's Personnel

Tom Farley has stepped down as president of the New York Stock Exchange, in order to lead a $400 million SPAC being formed by Daniel Loeb's Third Point. He will be succeeded by COO Stacey Cunningham.

Tony Seto has been sued by Freeman & Co., a boutique investment bank where he used to be co-head of fintech, for allegedly stealing "highly confidential trade secrets."

Robby Winarta is joining The Carlyle Group, per Bloomberg. He previously led Indonesian investment banking for Credit Suisse.

Final Numbers
Source: Renaissance Capital
  • U.S. IPOs have outperformed the S&P 500 over the past 12 months and year-to-date.
  • The S&P 500 has outperformed U.S. IPOs for 3-year and 5-year periods.
  • Spotify shares closed yesterday at $150.22, which is higher than their $132 IPO price but below their first post-IPO trades of $160.90 on April 3.
Dan Primack