The Festus and Helen Stacy Foundation has filed a claim charging TH Lee Putnam Ventures and Merrill Lynch Alternative Investments with inflating the valuation of their portfolio in reports to limited partners:
For example, even though 11 of the 37 companies that TH Lee Putnam had financed were shut down or had been written off completely, Merrill Lynch disclosed in its performance reports that the remaining 26 companies retained 91.8% of their value, the foundation's claim says. Wendell Bird, the attorney representing the Stacy Foundation, said it's unlikely that those 26 companies would be performing so well, while the other one-third were worth nothing at all. "There was a discrepancy with reality," said Bird...
Maybe we're cynical but we always assumed VC portfolios were inflated post-boom. We used to multiply total value by a percentage and refer to it as the "Limited Partner Discount Rate."
At any rate, "there was a discrepancy with reality" is the best thing we've heard all week.
Says The Accidental Consultant:
It is not just the Private Equity firms that have an interest in inflating values. The largest clients of the PE firms do as well.
[DJ/VentureWire via The Accidental Consultant]