CalPERS Plans Multibillion-Dollar Push In Venture Capital

CalPERS, America’s largest public pension plan, is planning a multibillion-dollar investment in international venture capital, as the $442 billion fund tilts toward riskier asset classes in search of higher returns after a “lost decade”. Is.

The California-based scheme announced plans to expand its venture capital allocation in a review of its $52bn private equity portfolio published on Friday. As part of the shake-up, the fund plans to expand its investments in Europe and Asia.

Plan officials said CalPERS could inject as much as $5bn in the new money into venture capital. It would be one of the largest US investors in the sector at a time when many funds are struggling to raise new money. Total venture funding fell 35 percent last year to $445 billion, according to data company Crunchbase.

“If you look at the highest performing private equity programs, many of them have an extremely high proportion of their private equity portfolio in venture capital,” Anton Orlich, Calpers managing investment director for growth and innovation, told the Financial Times. .

“So with that in mind, calpers should participate more in the venture.”

Currently, 73 percent of private equity portfolios are allocated to “buying” – buying assets and selling them at a profit; followed by 20 per cent for assets generating returns through capital appreciation or dividends. About 1 per cent of the portfolio is in venture capital.

The review document doesn’t say how much Orlich’s team wants to make of the venture capital program. But over time, that could be ramped up from about $800mn currently to about $5bn, according to plan officials, with the allocation ultimately to be determined by Calpers’ board.

The proposal comes as Calpers seeks to make up for what Orlich described as a “lost decade” of returns stemming from a decision to put the pension plan’s private equity program on hold between 2009 and 2018.

Nicole Musicco, who was appointed Calpers chief investment officer in 2022, estimates this cost in return of up to $18 billion.

The portfolio shake-up plans come two months after Calpers admitted it had lost about $77 million on its investments in Silicon Valley Bank and Signature Bank, both of which collapsed earlier this year.

Orlich stressed that the venture capital push was not just about returns but also diversification, especially in a period where the market expects higher interest rates. He added that venture capital was an asset class that was not taking advantage “in a period where higher costs are going to put pressure on buyout returns”.

Venture capital is perceived as high risk as finance is provided to unproven start-ups and small businesses hence returns take longer to materialize.

Orlich stressed that the new strategy will include working with high-quality managers, ramping up the co-investment program and a “sustained” deployment of cash over time. Despite investing in the private markets, a high-cost asset class, Orlich said he believed significant savings could be made through the shift to co-investing with no fees or superior performance payments.

Private equity has been the top-performing asset class in Calpers portfolio, delivering 21.3 per cent returns for the fiscal year ending June last year.

However, according to documents published last week, the private equity portfolio was down 4.7 per cent in the 12 months to March this year. That compared with its benchmark, which was down 16.9 percent, and the MSCI World Equity Index, which was down 17.7 percent.

Orlich said there was an “appetite” within the investment team to move the private equity allocation above its current 13 percent target of the overall portfolio.

“It’s being discussed,” Orlich said.

In his previous role as head of alternative investments at healthcare services company Kaiser Permanente, Orlich increased the alternative allocation from 15 percent to more than 50 percent for a portfolio of more than $100bn.