Tough times smack venture capital firms: still, Warburg Pincus expands its leadership position.

Tough times smack venture capital firms 

Still, Warburg Pincus expands its leadership position

Four firms included in 1990's List dropped out of this year's List of the 35 biggest venture capital firms with offices in the Los Angeles area, and 10 of this year's 35 saw the amount of capital under their management shrink.

This points up the risky nature of venture capital found in a research study by Morgan Stanley, the big Wall Street investment banking house. It reported venture capital was the poorest performer among a list of 17 different types of investments in terms of annualized return for both the five-year and 10-year periods ended last Dec. 31.

Venture capital had negative annualized returns of 2.4 percent for the decade and 3.8 percent for the five-year period, Morgan Stanley found. All of the other 16 investment types studied had positive returns for both those periods, it said.

To be sure, eight of the 17 investment categories had negative returns in 1990, Morgan Stanley reported, including four that were worse than venture capital's negative 12.7 percent. Still, that is a gloomy record for venture capital as an investment category.

Little wonder then, it may be observed, that fully 14 of those firms on last year's List of 35 venture capital firms either dropped off this year's List or had shrunken assets under management. Dropping out of this year's List:

* First Interstate Venture Capital Corp. had ranked seventh on last year's List with $216.8 million under management. But First Interstate Bancorp sold off a much shrunken operation, which was renamed Hall Morris & Drufua Capital Management; it ranks 28th on this year's List with $25.6 million under management.

* Capital Fund Partners, which ranked 26th with $35 million under management last year, closed its doors.

* Union Venture Corp./U.B. Equities, which ranked 27th with $32 million under management last year, declined to furnish figures this year.

* CTI, which ranked 35th with $2.5 million under management last year, also declined to furnish figures this year.

The 10 firms on this year's List with shrunken assets under management include: Burr Egan Deleage & Co.; Ventana Growth Fund; Crosspoint Venture Partners; DSV Partners; Xerox Venture Capital; Fairfield Venture Partners; Julian Cole & Stein; National Investment Management Inc.; Diehl & Co. and Imperial Ventures Inc.

Why then the interest in venture capital? one well might ask, given the dismal performance record of this investment category. Venture capital as an investment, perhaps, may be likened to that little girl of verse: "When she was good, she was very, very good, but when she was bad, she was horrid."

Like the little girl, venture capital, when good, was very, very good, indeed. For 45 years since the end of World War II venture capital achieved an annualized return of 18 percent, the most rewarding of any of the 17 investment categories in its study, Morgan Stanley reported.

Since hope springs eternal, various investment observers believe the cycle for venture capital is about to turn up again, perhaps already has started to revive for certain types of venture capital investments. Thus, eight on last year's List actually have increased their assets under management:

* First-ranked Warburg Pincus Ventures Inc. enhanced its lead by adding $100 million to assets under management, bringing the total to a thumping $3.4 billion.

* Second-ranked Security Pacific Capital Corp. moved up from fourth place by increasing assets under management to $613.7 million from $443.7 million.

* Eighth-ranked Pacific Venture Finance increased assets under management to $190 million from $150 million.

* Tenth-ranked Oxford Partners increased assets under management to $122.5 million from $122.0 million.

New on this year's List, besides the renamed Hall Morris & Drufua Capital, are: seventh-ranked Greylock Management with $275 million under management; ninth-ranked Domain Associates with $190 million under management and 30th-ranked Kinship Partners II with $20 million under management.

Each of the other 13 firms on The List reported retaining the same amount of assets under management as last year.