California pension fund looks to boost venture capital investments despite startup market turmoil

Important Points

Some venture firms have been forced to seek capital in the Middle East or Asia due to the reduced funding opportunities available in the U.S.

California's massive public pension fund wants to increase its exposure to venture capital in the next few months, despite a slump in the startup sector and a lackluster performance by the fund's VC fund.

CalPERS (California Public Employee Retirement System) manages assets worth nearly $457 billion as of April 20, 2023. Anton Orlich is the managing investment director of the pension fund for private equity. He is signaling CalPERS' eagerness to fill the funding gap in the domestic tech markets and become a larger limited partner.

According to the National Venture Capital Association (NVCA), after a record year in 2021, the exit activity of venture-backed firms dropped by about 90% last, as the IPO markets froze up and tech stocks crashed. While still at a historically high level, venture investing fell by 30% in comparison to the previous year.

Orlich, who is the investment director at CalPERS, has prepared a presentation for the fund's investment committee. The presentation can be viewed on the website of the fund. He says that the pension fund "should become a preferred provider in a time when some LPs pull back their commitments."

Orlich said CalPERS had adopted an "inconsistent" private equity strategy. He called it a "lost decennium" because CalPERS missed an extended bull-market and vintage years which would have delivered "strong investment returns."

According to a PitchBook Report, from 2000 to 2020 CalPERS has underperformed venture markets, with annual returns of only 0.49%.

CalPERS has a portfolio of private equity worth $55 billion, but venture represents only 1%, which is about $758 in NAV, or net asset value. CalPERS venture investments performed -24.8% worse than its PE portfolio in the past year.

Pension fund investments are heavily skewed towards the public markets and so-called real assets, like property.

CalPERS's desire to boost venture activity does not mean that its money will be accepted by all participants.

CalPERS, unlike many private LPs who can keep their relationships a secret, must disclose their investments and their performance. CalPERS, for instance, committed $600,000,000 to TPG's two venture funds in December 2022.

Orlich said that the funding environment would give CalPERS a competitive edge in finding "historically hard-to-access manager."