Lack Of IPOs Keeps Venture Cash, Staff Trapped In Startups (Investors.com)

Avoid Costly Hiring Mistakes by Improving Selection Performance (Roy Notowitz)

Anyone tasked with hiring can learn something from this article.

• Maintain a consistent format.
• Seek contrary information.
• Listen carefully and take detailed notes.
• Pay attention to cultural fit.

"According to a recent survey of 444 North American organizations by Right Management, more than two-thirds report that the cost of hiring mistakes adds up to two to three times the annual salary of the employee in question. In addition to training, recruitment and severance costs, the biggest consequences of bad hiring decisions are lower employee morale, decreased productivity and lost customers, the study says."

How US public funds fuel private equity (Financial Times)

In addition to considering the impact on pension funds, this article also makes one ponder the long-term impact on the private equity (LBOs) funds themselves. Can private equity (as an asset class) continue to efficiently absorb and deploy the continuing influx of pension fund capital? Can private equity really scale to deliver expected returns by doing multi-billion dollar deals? The capital has to be deployed somewhere ... right?

Some excerpts ...

"The public funds charged with securing the future of America's pensioners are a crucial driver of the current boom in the private-equity industry. By channelling an increasing portion of the nation's retirement pool into buy-out funds, the public custodians are feeding the cycle of takeovers, restructurings and sell-offs that define private equity."

"We are the big bucks now," says Jay Fewel, an Oregonian who has been running the private-equity division of his state's investment office since 1989. This year, Mr Fewel has already made commitments worth $3.5bn to buy-out firms.

"the 1.4m members of the California Public Employees' Retirement System, the largest public pension fund in the US, in the last fiscal year reaped a return of more than 19 per cent on the $11.3bn Calpers devoted to private equity from its $211bn portfolio. Over the past 16 years, Calpers has earned 33 per cent more through private equity than if it had invested the same amount in the equity markets."

"Public pension funds have nearly doubled their exposure to private equity over the past decade and on average invest some 8% of their funds in the asset class, according to Russell Investment Group, an investor services company. By comparison, corporate pension funds invest less than 7% and their exposure has decreased slightly since 1995.'

"For those who do not tread as carefully, the consequences of investing a lot in poorer performing funds, and at what many observers view as near the peak of the market, could be dire. Even Calpers, an early investor in private equity and a fund that by virtue of its size and pedigree can get access to the best deals, is moving to halve the number of firms it deals with to about 70."

"According to one private-equity headhunter, the entire budget of Oregon's investment office is at the lower end of what a senior partner at a large buy-out shop might expect to make in a year – even before any share of the profit from deals is doled out."

Private Lies (The New Yorker)

This article provides some thought provoking points regarding conflict of interest created by MBOs. While I believe many of these points are valid, I would argue that the article overstates the ability of executive management to make drastic structural changes to their companies while public. One should also consider that MBOs are most attractive when it is believed the public market is undervaluing the company. (Dan Primack also offers an analysis of this article in the 8/23 PE Week Wire.)

"In a study of more than sixty companies that went private, Sharon Katz, of the Harvard Business School, found that, in the two years preceding a management buyout, companies recorded lower than expected accounts receivable, which drove profits down. Similarly, a study by two accounting professors found that executives pursuing M.B.O.s tended to accelerate the recognition of expenses and delay the recognition of revenue, making their companies look less profitable than they were. Management buyouts have a reputation for dramatically improving companies’ performance. But these studies suggest that part of the reason is that executives were making them look bad while they were public."

Bridge Loans vs. Preferred Equity (Josh Kopelman)

Josh provides an interesting discussion of when bridge loans / preferred equity are most appropriate.

"The main reason I'm given when people choose convertible notes instead of equity is that "setting a valuation for a seed-round makes it challenging to get a higher valuation for a venture round." In my experience, as long as the venture round occurs more than a few months after a seed-round, this is not the case." ... "This, of course, assumes that the terms for the equity are standard market terms. "

A new Portland cluster? Alternative investments (Portland Business Journal)

"As alternative investments gain favor among wealthy speculators, some experts believe Oregon can become a national hub for the emerging financial-industry concept. "

On Managing with Bobby Knight and "Coach K" (HBS Working Knowledge)

Anyone who knows me, knows that I am not much of a sports fan, but everyone knows Bobby Knight and Mike Krzyzewski. Their leadership styles are certainly worth analyzing and learning from.

"For hiring managers, one lesson is to understand the dominant type of motivation supported by your corporate culture and hire people who thrive in those situations. Be clear in hiring interviews what the situation is, says Snook. "Don't come here if you're not into teamwork. Don't come here if you don't like working and collaborating. Whatever it is. Be clear in the interview and you'll attract those kinds of people. It's back to the model about being more self-aware and, at the organizational level, more aware of what your predominant culture is. Then you translate that into who you attract, select, hire, socialize, promote, and fire."

When Is Backdating [stock options] a Crime? (CFO.com)

"The purpose of backdating is straightforward: it gives options holders an immediate paper gain, and a real gain once the option is exercised. The practice involves using hindsight to assign a stock-option contract an earlier date than its actual grant date. By pushing the date into the past, to a time when the underlying stock traded at a lower price than it did the day the grant was issued, the option holder is, in effect, being given the promise of cash. That promise is considered to be an in-the-money options grant.

In-the-money options are different from performance-based compensation in the eyes of the Internal Revenue Service and the Financial Accounting Standards Board. For example, the IRS disallows certain corporate tax deductions for in-the-money options, but it allows them for performance-based pay."