California’s large public pension fund is looking to increase its venture capital exposure in the coming months despite a sluggish startup market and the fund’s venture portfolio’s recent underperformance.
As of April 2023, the California Public Employees Retirement System (CalPERS) managed nearly $457 billion in assets. Anton Orlich, managing director of private equity at the pension fund, said CalPERS was eager to step into the domestic funding vacuum as a bigger limited partner after a brutal year in the tech private equity market.
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After a record 2021, exit activity by venture-backed companies plunged about 90% last year as the IPO market froze and tech stocks slumped, according to the National Venture Capital Association. Venture capital, while still at historically high levels, was down 30% from the previous year.
in a promotion meeting Orlich will provide to the CalPERS investment committee on the fund’s website, with the investment director saying that pension funds should “become the solution provider of choice at a time when some LPs are withdrawing their commitment.”
Orlich said CalPERS’ private equity investment strategy has been “inconsistent.” He described it as a “lost decade” as the company missed out on a long bull market and years that would deliver “strong investment returns.”
Between 2000 and 2020, CalPERS underperformed the venture capital market, returning 0.49% annually, according to a report from PitchBook.
Venture represents just 1% of CalPERS’ $55 billion private equity portfolio, which equates to about $758 million in net asset value. Last year, CalPERS’ PE portfolio returned -4.7%, and CalPERS’ VC performance was -24.8%.
Pension funds’ investments have shifted to public markets and so-called “real assets” such as real estate.
But just because CalPERS wants to step up activity in the venture capital space doesn’t mean its funding will be welcomed by all players involved.
Unlike many large private LPs, whose relationships can be kept secret, CalPERS is required to disclose its investments and publish its results. For example, in December 2022, CalPERS committed $600 million to two of TPG’s venture funds.
Still, Orlich said the funding environment will give CalPERS an advantage in finding opportunities with “historically hard-to-reach managers.”
watch: Pension Fund Venture Capital
