• Never Mind Those Markdowns: An LP Plans for Next Year

    raining_moneyEarlier this year, FLAG Capital Management — an asset manager that has backed a long list of top venture firms, including Accel Partners, Andreessen Horowitz, Redpoint Ventures, Spark Capital and Union Square Ventures — wasacquired by the British fund manager Aberdeen Asset Management.

    The terms of the deal weren’t disclosed. But the union created a giant that manages $15 billion in private equity assets – money that many venture firms will invariably be competing to attract when they hit the fundraising trail next year.

    To get a sense for how Aberdeen views the market right now, and who’s liable to see a check from the firm in the coming months, we chatted yesterday with its head of global venture capital, Peter Denious. Our conversation has been edited for length.

    It’s a little choppy out there. Meanwhile, your job is to fund venture capital firms. Are you nervous? Are you planning to pull back a bit in 2016?

    As it relates to venture, there won’t be any changes in our strategy. A lot of time was invested in this point [when we were being acquired by Aberdeen], and we plan to stay true to our model, which is to invest about $100 million per year in early-stage venture funds.

    So you aren’t troubled by private-company valuations trending downright now.

    I think it’s somewhat overdue. We aren’t interested in watching markets get overheated. I wouldn’t be surprised if we see more volatility in 2016, but I think it imposes more discipline on the private market.

    What about interest rates? Would an expected rate hike impact your work?

    For all asset classes, there will be some ripple effects for sure, but it’s probably going to be most muted in the case of venture capital and it wouldn’t change how we approach the business. I suspect it will have more of a dampening effect on capital flowing into other alternatives, including the buyouts space.

    You sound so positive about venture capital.

    It’s been a banner year for distributions for the industry and certainly for FLAG, and now Aberdeen, where we’ve seen record-setting amounts of cash returned. That’s really a reflection of what happened very early this year and last year, when a lot of companies went public; VCs have to work off those lock-up periods, and that takes time. But we’ve had the good fortune of being able to send back a lot of money to our investors.

    Of course, IPOs are now down 50 percent year-to-date by dollar amount.

    Much more here.

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