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Calpers ups VC allocation after ‘lost decade’

The largest US public pension scheme is looking to expand its allocation to venture from around $800 million to up to $5 billion after a “lost decade” of returns.

America’s largest public pension scheme, Calpers, which manages some $444 billion in capital on behalf of California’s 1.5 million state, school, and public agency employees, is leaning into venture—even as many LPs lean away.

After years of bringing down its VC exposure to a 1% target, the institutional investor is now looking to increase its allocation by more than sixfold, from $800 million to $5 billion, the Financial Times reported. The strategy shift comes on the heels of steep losses in Calpers’ venture strategy as well as losses related to Silicon Valley Bank‘s failure.

The pension manager suffered a “lost decade” coinciding with the venture boom, according to a new review of the program by managing investment director Anton Orlich.

 


Calpers’ decision to reverse course on venture will likely attract a stampede of GPs looking to close new funds in the worst fundraising climate the industry has seen in over three years. But accepting capital commitments from Calpers comes with a caveat: The pension scheme publicly discloses fund performances in filings, a transparency requirement that has reportedly deterred some large funds from working with public pensions like Calpers. This limitation may be one of the reasons Calpers’ venture returns have been historically lackluster. From 2000 to 2020, its venture performance was a dismal 0.49%, compared to 11.59% in buyouts.

Calpers declined to comment.

Orlich’s latest review of Calpers’ $55 billion private equity program, published ahead of a June 20 board meeting, argues that “inconsistent allocation by vintage year and under-allocation to the venture strategy contributed to Calpers PE underperformance over the last 10 years.” The review compares Calpers’ 10-year IRR of 12.3% in private equity returns to the Cambridge and State Street indexes’ 16.2% and 14.6% IRR, respectively.

In 2011, Calpers approved a target exposure of 1% to venture capital within its alternative investment management program, now referred to as its private equity program. At that point, about 7% of its alternative assets were allocated to venture.

 


Over the following decade, the institutional investor systematically chiseled its venture exposure down—5% in 2016, 3.4% in 2017, 1.9% in 2020—and finally hit its 1% target in the second half of 2021, according to semi-annual reviews of Calpers’ private equity program done by financial consultancy Meketa Investment Group.

The timing couldn’t have been worse. Venture funds vastly outperformed rival strategies during the period, culminating in a banner year for VC-backed IPOs in 2021. In 2020, the investor hired a new head of VC, Ben Lee, and began to commit more significant sums, including a $300 million check to Tiger Global and $400 million to four Lightspeed funds. Then, in November of last year, the pension scheme upped its venture target to 6%.

Calpers is leaning into venture at a turbulent moment for the asset class. In the fiscal year ending March 2023, the scheme’s venture strategy recorded a -24.8% performance. Calpers also lost an estimated $77 million on its investments in Silicon Valley Bank and Signature Bank.

Featured image by Max Whittaker/Getty Images

  • rosie-headshot.jpg
    Rosie Bradbury is a reporter covering startups and venture capital for PitchBook News. Based in New York, she previously reported for the Bureau of Investigative Journalism, Business Insider and Wired. Rosie studied history and politics at the University of Cambridge.
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