Some noteworthy comments today from Mark Anson, chief investment officer of California Public Employees’ Retirement System, one the nation’s largest investors in venture capital funds.
He warns of a bubble in the “private equity” industry, which includes venture capital firms, but also buyout funds and hedge funds. According to the Reuters story, he didn’t say much about venture capital, but focused mainly on the hedge fund and buyout industries. Low interest rates, he said, have encouraged investors in these sectors to leverage funds to pour into the sector, resulting in lots of people chasing deals, possibly pushing down long-term returns for everybody. They may also be squeezed badly if interest rates go up.
“The biggest one (asset bubble) I’m afraid of at the moment is private equity,” he said, according to Reuters. “The current overhang of leveraged buyouts committed but not invested is $182 billion (end-2003 figure). A lot of money is chasing high yield. Hedge funds are competing with buy-out managers and that convergence scares me.”
Seems more of a problem for East Coast (more heavily reliant on buyout, hedge fund), than for West Coast (venture capital), but in the end, we’re all connected.