The California Public Employees' Retirement System plans to expand its private equity investments into venture capital.
The Sacramento-based retirement and benefits fund is implementing a comprehensive venture strategy, which it will detail at its June 20 board meeting, according to agenda materials.
Private equity at CalPERS accounted for $55 billion in assets under management as of March 31. Of that, about $758 million was dedicated to VC investing, representing 1.4% of the total private equity class.
CalPERS in its asset allocation for venture capital has a target range for VC investing of between zero and 12%, so the fund can raise the VC allocation without changing its existing asset allocation. As of June 14, CalPERS had $460 billion in assets under management.
A larger portion of VC money is also part of a larger commitment to private equity in general. The system in 2021 increased its asset allocation for private equity from 8% to 13% starting with the 2022-23 fiscal year.
Venture capital investing can tie up money with no liquidity for years, but the staff report says that "a long investment horizon is a responsibility and an advantage."
As part of its VC-investing strategy, CalPERS says it will "partner with historically hard-to-access managers and become a preferred solution provider in a period when some limited partners are pulling back commitments."
It will also "explore partnerships with organizations and focus on making seed investments into small, emerging and diverse private equity managers."
The largest part of CalPERS' private equity allocation now is dedicated to buyouts, at 73%.
The staff report says venture returns have largely outperformed buyout returns since 2010.
The presentation will be given by Anton Orlich, managing investment director of private equity for CalPERS. Orlich was named to the position last October. The newly created position is responsible for developing strategies and investment deals focused on higher growth and higher risk and reward opportunities, according to CalPERS. Orlich was previously head of alternative investments at Kaiser Permanente. He was a portfolio manager in CalPERS’ private equity program from 2013 to 2016.
One potential hurdle for CalPERS expanding its VC allocation is that under California law, CalPERS has to disclose its investments and publish its performance in detail. That reporting requirement doesn't align with a lot of VC firms and limited partnerships that like to keep their investments secret.
But with the shakeout in venture capital investing over the past year, more VCs might be interested in access to money despite the reporting. After a record-breaking 2021 for VC investment exits, exit activity fell 90% in 2022, according to the National Venture Capital Association. The sharp rise in interest rates was a partial cause as initial public offerings, which spiked in 2021, virtually disappeared the next year.
