Wellcome Trust, the UK’s biggest endowment with $25bn under management and one of the world’s biggest investors in entrepreneurs, has slimmed its portfolio of third-party venture capital fund managers to just more than 12 from about 50.
The decision comes as Wellcome, which has about a tenth of its assets in venture capital and has a 65% annual rate of return from the asset class, has been investing more directly as a quasi-corporate venturing unit.
Geoffrey Love, team head of venture and equity long/short at Wellcome, said at the US-based trade body the National Venture Capital Association’s (NVCA) annual conference declined to disclose the list of about 13 managers it is backing in the future but it is understood to include top-tier firms.
Love said the outlook for venture capital returns was now relatively good and Wellcome was "always on the lookout for outstanding new managers, but have not started a new relationship for several years," and so was investing more itself directly in deals.
Wellcome recently backed Beyond Oblivion, a US-based digital music market that raised $77m from a consortium also including media conglomerate News Corp, as well as a number of healthcare entrepreneurs.
In a panel discussion, the Future of Venture Investing, at the NVCA event, Love said most of Wellcome’s money in venture capital was still through funds but "an increasing part is co-invested alongside trusted venture partners".
He said its venture deals was having an unexpected benefit for the rest of the organisation, which uses the financial returns from its assets to provide grants for medical research. He said rather than provide grants to scientists researching specific areas it was pursuing the greatest minds and then giving them the flexibility to see what they discovered.
He said the environment for venture investing was now good – 7.5 out of 10. This was similar to another of his panellists, Brooks Zug, senior managing director of funds of funds manager HarbourVest Partners, which has invested $8-9bn in venture since 1982. Zug said he rated venture investing now a "nine" out of 10.
Both their optimism came despite poor returns over the past decade. William (Bill) Sahlman, a Harvard Business School professor and moderator of the panel, said they had "sucked".
"Bill’s absolutely right," said Love, who added: "Over the past 10 years returns have sucked. We often use stronger language at our offices in London. But I think today – if you have the courage to invest in venture capital – it’s a great time."
Zug said venture cycles typically lasted anywhere from 13 to 17 years from peak to peak. And, as the past three peaks were 1999-2000, 1989 and 1969, the next peak will happen in "three to six years", making it "a terrific time to invest," he said.
Zug said there was some heating up of pricing in later stage and growth equity deals but medical technology would be a good place to invest, with a caveat that the best returns often came from areas no one expected.
Love agreed there were "leaps of innovation" being made by bringing the experience of technology experts to bear on health problems and it was now cheaper to sequence a person’s DNA than store it.
The final panel member, Paul Maeder, co-founder and general partner of Highland Capital Partners and chairman of the NVCA for the next 12 months, said chasing trends of the past four to five years was "a very dangerous game".
He said Highland, which made a positive return on 20 of its first 21 deals, was looking at financial services, robotics and education as trends to invest in.