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

Calpers plans to expand venture capital allocations

California’s giant public pension fund is looking to increase its venture capital exposure in the coming months, despite a swoon in the startup market and lackluster performance of late by the fund’s VC portfolio.

The California Public Employees’ Retirement System, or CalPERS, manages nearly $457 billion in assets as of April 2023. Anton Orlich, the pension fund’s managing investment director for private equity, is signaling CalPERS is eager to step into the domestic funding vacuum and become a bigger limited partner following a brutal year in the tech private markets.

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After a record 2021, exit activity among venture-backed companies plummeted about 90% last year, according to the National Venture Capital Association, as the IPO market froze and tech stocks cratered. Venture investing, while still historically high, fell 30% from the prior year.

In a presentation Orlich will provide to CalPERS’ investment committee available now on the fund’s website, the investment director says the pension fund should “become a preferred solution provider in a period when some LPs are pulling back commitments.”

Orlich said CalPERS’ private equity investment strategy had been “inconsistent.” He described it as a “lost decade,” because the firm missed out on an extended bull market and vintage years that would deliver “strong investment returns.”

Between 2000 and 2020, CalPERS underperformed the venture market, according to a PitchBook report, notching annual returns of 0.49%.

Venture makes up just 1% of CalPERS’ $55 billion private equity portfolio, representing about $758 million in net asset value. In the last year, while CalPERS’ PE portfolio returned −4.7%, CalPERS’ venture investment performance came in at −24.8%.

The pension fund’s investments have skewed to the public market and to so-called “real assets,” such as property.

But just because CalPERS wants to bolster activity in the venture world doesn’t mean its money will be welcomed by all participants.

Unlike many large private LPs that can keep their relationships secret, CalPERS has to disclose its investments and publish its performance. In December 2022, for example, CalPERS committed $600 million to two of TPG’s venture funds.

Still, Orlich says the funding environment will give CalPERS an edge in finding opportunities “with historically hard-to-access managers.”

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