Life After Global Crossing: Players Launch Huge Fund.

DAVID Lee and Barry Porter, the two senior-level managers who helped Gary Winnick build Global Crossing Ltd. into a telecom powerhouse, aren't wasting any time getting their new venture capital firm off the ground.

The firm, called Clarity Partners, opens for business in Beverly Hills this week, and its first fund will be a doozy -- at $1 billion, it'll be one of the biggest in town. They've engaged Merrill Lynch to help raise the money.

Lee and Porter are launching Clarity Partners with Rudy Reinfrank and other partners at venture shop Rader Reinfrank.

So if all goes according to plan, Los Angeles will soon have another behemoth pool of capital for investment in startups, especially in tech fields such as Internet-telecom infrastructure, Reinfrank said.

"Cable, fiber, optical networking and switching -- those are some of the areas we will be most interested in," he said, declining further comment until Lee's official arrival at Clarity.

By some industry estimates, companies worldwide will spend $30 billion to $40 billion a year upgrading and expanding fiber-optic cables and delivery systems over the next several years.

What Really Counts?

"We have been counting things wrong."

That's always an interesting statement but even more so when you consider the source in this instance is Barry Libert, the Arthur Andersen veteran and partner who co-authored the new book, "Cracking the Value Code." Published by Harper Business, it's the first book ever to carry Arthur Andersen's imprimatur.

Libert was in town last week to pump his new book and meet with fellow Arthur Anderseners about the increasing dislocation between what they count in financial disclosure statements -- hard assets, receivables, reportable profits, etc. -- and what counts for more and more in the real world and on Wall Street: brands, talented employees, intellectual property, key relationships with vendors, customers and business partners.

In recent years, companies such as Microsoft Corp. have performed superlatively, not only on Wall Street but commercially as well, sometimes with less-than-spectacular book value (hard assets) and with famously well-compensated employees.

"In accounting today we miss the Microsofts. What we measure is just one-sixth of what makes a typical company valuable," says Libert. "Take this simple example: Employees have been treated as expenses, not assets. Training as been treated as a cost, not the creation of an asset."

But in a knowledge economy, employees are the assets, contends Libert.

In the future, Big 5 firms may start trying to report on the "soft" corporate assets, such as key employees, brands and business relationships.

Perhaps annual disclosure statements will reveal how talented employees are compensated, and the incentives in place for retention (beyond senior executives).

Other issues addressed might include intellectual property and how is it protected, and if business relationships are unique and sturdy, or frail.

Of course, in the long run, even Libert concedes that profits -- still a relatively easy thing to count -- have to be made, and that is what Wall Street ultimately looks for.

By the way, Libert has some stunning figures for fans of old-school investing: "If you invested $100 on Wall Street in 1982 (in a broad mix of stocks), you would have $1,200 at the end of 1999. If you had invested $100 in software stocks, you would have $31,000. If you invested in real estate, you would have $400." (Libert made those calculations according to broad sector indexes.)

The idea that something safe and solid like real estate is a hard asset that serves as a perceived safety net for the investor is dead as a doornail, according to Libert. "That's not how value is created today," he says.

At least that's been the case during the most recent cycle on Wall Street.

Financial Dot-Com Deal

Online investment advice Web site iExchange.com, incubated by Idealab in Pasadena, recently inked a deal with Waltham, Mass.-based Lycos Inc., the big Web outfit, in which iExchange will provide Lycos Investment Channel with investment research through a new co-branded site, www.iexchange.lycos.com.

The marriage should heighten iExchange's visibility, since Lycos claims 33 million monthly visitors who will be but one click away from iExchange, a sort of online grassroots investor forum where anybody can become a self-styled analyst and post recommendations. "Analysts" are then ranked according to how their predictions play out.

So far, iExchange has ranked 8,200 "analysts," who have posted a total of 73,000 reports on 6,400 companies. "Analysts" are not required to have any training or credentials. Their rankings are strictly performance-based; the better their stock picks perform, the higher they move in the rankings.

Analysts hope that they will develop a high enough ranking over time to entice Web surfers to pay for a peek at their picks. (Analysts then split the proceeds with iExchange.)

The track record on "analysts" appearing on iExchange, which has been in business about a year, is too fresh to test. But some of the stock-pickers are carrying hot hands.

One, identified as "Yogi," who describes himself as legally blind, has posted and "closed out," or sold, 19 picks since October 1999, for an average return per pick of 134 percent. His annualized return, as reported by iExchange, is 1,769 percent.

However, it should be noted that on 24 current and open recommendations, Yogi is down 7 percent as of last week. As they say, past is prologue, except when it is not.

By the way, iExchange doesn't necessarily snub all professional analysts. In mid-June the site linked up with 66-year-old Argus Research Corp., an independent investment research and marketing organization, and made available Argus reports to Web surfers.

Argus was the first institutional research firm to submit itself to iExchange's ranking system.

Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal.