Key Takeaways
- • Public pension funds, which manage retirement benefits for nearly 20 million Americans, were the largest single source of capital flowing into venture capital over the last few years, according to the Dow Jones Private Equity Analyst Sources of Capital survey.
- • Public pensions supplied 20 percent of venture capital's overall haul in 2014, down from 25 percent in 2013.
- • The funds are financed by tax dollars and state employee contributions, meaning taxpayers and public employees carry exposure to a venture capital boom that is often assumed to be funded only by wealthy private investors.
- • Defined-benefit public pension plans have pursued venture capital as a way to seek higher returns than bonds and stocks can provide.
Summary
Bloomberg's analysis challenges the view that any venture capital bubble would spare ordinary investors. Industry opinion is divided on whether venture capital is currently in a bubble, with Bill Gurley arguing that one exists and Marc Andreessen disputing it. Some commentators have suggested that a bubble, if present, differs from past cycles because venture capital is financed by private, wealthy investors and therefore does not put mom-and-pop investors at risk.
Bloomberg argues that this assumption is not entirely accurate. Public pension funds, which are state-run investment pools responsible for the retirement benefits of nearly 20 million Americans, have been quietly funding the recent venture capital boom. These pools are made up of tax dollars and contributions from state employees.
According to the most recent Dow Jones Private Equity Analyst Sources of Capital survey, public pensions have been the biggest single source of funds flowing into venture capital for the last few years. They supplied 20 percent of the sector's overall capital in 2014, down slightly from 25 percent in 2013.
Public pension plans have turned to venture capital largely in pursuit of higher returns than they can achieve from bonds and stocks. Most of this exposure is channeled through investments in other venture funds rather than through dedicated in-state vehicles, which are uncommon.
Bloomberg argues that this assumption is not entirely accurate. Public pension funds, which are state-run investment pools responsible for the retirement benefits of nearly 20 million Americans, have been quietly funding the recent venture capital boom. These pools are made up of tax dollars and contributions from state employees.
According to the most recent Dow Jones Private Equity Analyst Sources of Capital survey, public pensions have been the biggest single source of funds flowing into venture capital for the last few years. They supplied 20 percent of the sector's overall capital in 2014, down slightly from 25 percent in 2013.
Public pension plans have turned to venture capital largely in pursuit of higher returns than they can achieve from bonds and stocks. Most of this exposure is channeled through investments in other venture funds rather than through dedicated in-state vehicles, which are uncommon.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.