Pension plans unsure about VC commitments

"Groups that wouldn't talk to public pension funds a few years ago are now considering us," Scott Parrish, private equity portfolio manager for the State of Wisconsin Investment Board, told the AVCJ Forum last week. "We are not viewed as dumb money as used to be the case in venture capital."

Endowments are a factor here. Endowments' reputation for identifying the leading edge fund managers before everyone else was built upon early exposure to US venture capital in the 1980s, and although they remain its backbone, the global financial crisis prompted a pull back.

In 2009, there was a 23.2% drop in the market value of 864 North American endowments tracked by the National Association of College and University Business Officers and CommonFund. Given that these institutions depend on voluntary donations rather than monthly contributions, it takes them longer to renew their capital reserves than pension funds.

However, Washington State Investment Board this week became the latest pension plan to express frustration at its inability to get exposure to top quartile managers.

"Due to our size, we're never going to be able to get into the best funds because they are not going to come to Washington, sit in front of my private markets committee in an open meeting, with the press in the back, and ask Washington for money," Gary Bruebaker, the board's chief investment officer, told Reuters.

The board's main $62 billion pension fund lowered its venture and growth capital allocation target range to 0-10% in 2009. It was previously 5-15%. At present, 8.1% of the fund's $16 billion private markets portfolio is invested in venture and growth capital, and Bruebaker expects this level to fall gradually.

Joe Dear, chief investment officer at the California Public Employees' Retirement System (CalPERS), said in August that his pension plan would reduce its venture target allocation to less than 1%. He gave two reasons: VC has been the most disappointing asset class over the past 10 years in terms of returns; it is difficult for a pension plan of CalPERS' size to be able to allocate sufficiently large amounts of capital to the best managers that it makes a difference to overall performance.

CalPERS currently has $2.1 billion of its $240 billion portfolio in venture capital.

The reality is that few pension funds globally are willing to partner with a wide range of venture capital firms due to the innate risk involved in such a strategy.

John Brakey, head of private equity at MLC, the wealth management division of National Australia Bank, which provides investment, superannuation, insurance and private wealth solutions to corporate and institutional customers, told the AVCJ Forum that he favored a few tightly held VC relationships.

"We are not going to invest widely in VC because it's a recipe for losing money," Brakey said.

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• Topics
• Venture
• LPs
• North America
• Australasia
• Venture
• LPs
• USA
• California Public Employees' Retirement System (CalPERS)
• State of Wisconsin Investment Board
• Washington State Investment Board
• MLC Private Equity
• Australia