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> From: Juliet Chung <juliet.chung@gmail.com>
> Date: October 22, 2014 at 9:42:29 PM EDT
> To: "Chung, Juliet" <juliet.chung@wsj.com>
> Subject: WSJ: Hedge Funds Add to Venture-Capital Bounty
>
> Hi, Juliet with the Journal here. Thought you might be interested in this story in tomorrow's paper about Maverick Capital launching its first venture-capital fund Jan. 1--a move highlighting the industry's westward gaze. As always, please let me know if you'd like to stop receiving these emails. Best, Juliet
>
>
> Hedge Funds Add to Venture-Capital Bounty; Maverick Capital Plans to Start VC Fund On Jan. 1
>
> By Juliet Chung
>
> Wall Street is hitting the startup scene.
>
> Maverick Capital Ltd., one of the oldest hedge-fund firms, plans to launch its first venture-capital fund on Jan. 1, according to investors, with hopes of raising $400 million to take stakes in young companies.
>
> In pitching the fund at Maverick’s annual investor meeting last week, one investor said, founder Lee Ainslie III said the New York firm was seeing the best opportunities in many years for making early-stage investments in private companies.
>
> Such deals aren’t the bread and butter of hedge funds, which typically bet on the moves of stocks and other publicly traded assets.
>
> But Maverick, with roughly $9 billion under management, is among a growing number of Wall Street firms that are trying to get a piece of the lofty valuations being achieved by startups in Silicon Valley and elsewhere.
>
> New York investment firms Tiger Global Management LLC and Coatue Management LLC have been players on the West Coast venture-capital market. Tiger Global, which started as a hedge fund, now manages more money in its venture funds than in its hedge funds, according to a person familiar with the firm. Hedge-fund firm Valiant Capital Management LP, out of San Francisco, has also been active.
>
> Like those firms, Maverick has roots that trace back to legendary investor Julian Robertson.
>
> Several mutual-fund firms, including Fidelity Investments and BlackRock Inc., have also taken stakes in a number of startups.
>
> Venture funds have raised billions of dollars as low interest rates and stellar returns on some deals—like the public offerings of Facebook Inc. and Twitter Inc.—have enticed big investors such as pension funds and endowments to write checks.
>
> Venture funds are on pace to raise the most money in a year since 2007, according to Dow Jones LP Source.
>
> The new fund won’t be Maverick’s first go-round at investing in young, closely held companies. The firm has made such investments within its flagship equities hedge fund since 2004 under David Singer, a managing director.
>
> Some of its deals have included stakes in IEX Group Inc., the upstart stock exchange, and a holding company that recently bought Perzo Inc., a Palo Alto, Calif., messaging-software company.
>
> Its realized, private investments since 2004 have compounded at 25.9%; of the 49 private investments it has made since then, it has written off six, according to a person familiar with the matter.
>
> In its new fund, Maverick plans to invest in health-care, consumer and software companies, both in Silicon Valley and beyond.
>
> The new fund is considered sizable for venture capital but still considerably smaller than the $1.5 billion funds raised earlier this year by Tiger Global and Andreessen Horowitz.
>
> The enthusiasm for venture investments, and free-spending by some startups flush with cash as a result, has caused some industry veterans to wonder lately if the market is frothy.
>
> Prominent venture capitalists Bill Gurley and Marc Andreessen have sounded notes of caution recently, and Mr. Andreessen tweeted that his firm had pulled away from growth-stage investing, largely because hedge funds and other public-market investors have been pumping up valuations by crowding into deals.
>
> A similar dynamic played out in the dot-com boom, when money managers flocked to venture-capital investing after years of eye-popping valuations. Many of those managers got in just before the Internet bubble burst.
>
> David York, managing director of the San Francisco-based Top Tier Capital Partners LLC, which invests client money in venture funds, sounded a similar worry.
>
> “We are far more cautious today than we were two years ago because of the money flowing into the late-stage space both from hedge funds as well as from mutual-fund companies,” he said in an interview.
>
> Top Tier believes the technology cycle still has “room to grow,” Mr. York said, “but it does make us take pause.”
>
> Mr. Ainslie, 50 years old, started Maverick in the early 1990s with financial backing from the Wyly family out of Texas. Mr. Ainslie later bought them out.
>
> Maverick’s venture-capital fund will be led by the San Francisco-based Mr. Singer, and the firm will put $50 million of its own money into the fund.
>
> It will avoid pre-initial-public-offering investing, when valuations are typically higher, and instead focus on investing when companies are valued in the tens to hundreds of millions of dollars, said a person familiar with the matter. The person added that the firm shares the concerns about some recent valuations.
>
> In its hedge-fund business, Maverick’s average annualized return has been about 12% since its 1995 inception, compared with 9.4% for the S&P 500-stock index.
>
> This month, when many top hedge funds got dinged by market fluctuations, Maverick was in the black.
>
> In its second-quarter investor letter, Maverick said it was taking a conservative posture in its portfolio and bringing down its exposure to the stock markets. The firm saw fewer compelling long ideas than it usually did, the letter said, according to a person who read it, and was worried about the complacency of the markets given challenges in Europe and China.
>
> The firm, which bets on and against stocks, was up 0.7% through Friday for October and 3.4% for the year, compared with 3.7% on a total-return basis for the year by the S&P 500-stock index. Maverick Select, a fund which invests in Maverick’s best long and short ideas, is up 10.3% for the year.
>
> At the annual meeting, Mr. Ainslie said he expects the stock-picking environment to improve as the Federal Reserve continues to pull back on its bond-buying program.
>
> —Douglas MacMillan contributed to this article.
>
> Write to Juliet Chung at juliet.chung@wsj.co