2011 marked Wellington's best year yet

We just wrapped up our financial reporting cycle, and in the spirit of transparency I thought I’d fill you all in. 2011 was our best year yet for Wellington Financial Fund III investors, in terms of total fund revenue and — most importantly — net returns.

Revenue was up almost 20% versus 2010, but lots of firms probably experienced a jump coming out of the recession. What matters in our business is profits to investors, of course, and we earned our LPs a 9.4% net return last year. For a fixed income vehicle in an environment where the 10 year government bond spent most of 2011 in the 2% range, 740 basis points over the risk free is meaty, if perhaps unsustainable. The returns last year came almost entirely from interest income and a bit of fee revenue; although we’ve already seen two of our portfolio companies enter into acquisition agreements so far in 2012 (Belair Networks and Clairmail), there were no warrant gains to speak of last year. Take care of the portfolio, and it shouldn’t let you down.

Our Fund III is of the 2006-vintage, which means we now have 5 year IRRs, too (our returns are unlevered btw):

On a “cost” financial basis: 8.8%

On a “GAAP” financial basis: 10.0%

These 5 year net IRRs are also after general and specific credit reserves. Our fund returns compare to a 6.4% IRR for the DEX Bond Universe on a 5 year basis and 2.6% for the Thomson Mezzanine benchmark (as last reported). My favourite internal graph reflects the volatility (or lack thereof) of our Fund III returns over a five year period, and they mirror the DEX Bond Universe…which is made up of about 1,135 highly-rated government and corporate bonds.

I’m very proud of our team, and this return profile is entirely a group effort. We’re never quite satisfied with how things are going, as every entrepreneur will appreciate, but we’re hitting the mark and having some fun.

Thanks to our investors, entrepreneur partners and VC allies for their continued support and confidence.

MRM