Foundation Accuses TH Lee Putnam Of Inflating Portfolio Value

Here's a good story: A foundation suing over inflated values in a VC fund. Expect to see more of this. 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. Inflated values give pension plan sponsors lots of wiggle room on plan funding. Also, the biggest endowments (such as the large Universities) who have plowed huge percentages into private equity have a lot at stake. The endowment managers have become heroes in the last few years generating high returns.

If you are a hotshot manager at Harvard or Stanford, and you have posted fantastic returns by being invested in illiquid assets (not marked to market) vs. liquid assets (marked to market) do you really want to make sure that your illiquid assets are being valued correctly? In my archives, you will see that I have already predicted that the large exodus of talent from the top universities is a result of "getting out at the top". This lawsuit is the first sign of what is to come.

I am always suspect of returns in illiquid markets, and I wouldn't be surprised at all that if these endowments haven't done nearly as well as they claim.

http://snipurl.com/olwq