Key Takeaways
- • CalPERS, managing $457 billion in assets, is actively increasing venture capital allocations despite a 90% collapse in exit activity among venture-backed companies and a 30% decline in venture investing year-over-year.
- • Venture capital represents only 1% of CalPERS' $55 billion private equity portfolio ($758 million in net asset value), with the fund's VC investments returning −24.8% in the last year versus −4.7% for the broader PE portfolio.
- • Anton Orlich, CalPERS' managing investment director for private equity, is positioning the fund as a "preferred solution provider" to capitalize on a funding vacuum created by other limited partners pulling back commitments during market turmoil.
- • CalPERS underperformed the venture market significantly between 2000 and 2020, achieving only 0.49% annual returns, which Orlich described as a "lost decade" that missed extended bull market vintage years and strong investment returns.
- • The pension fund's historical bias toward public markets and "real assets" such as property has left it strategically positioned to increase VC exposure while other institutional investors retreat from the sector.
Summary
California's $457 billion public pension fund is moving aggressively to expand venture capital investments at a time when the startup funding environment has deteriorated significantly. The California Public Employees' Retirement System (CalPERS) is signaling its intention to increase VC allocations despite a brutal 2022 marked by a 90% collapse in exit activity among venture-backed companies and a 30% year-over-year decline in venture investing overall, according to the National Venture Capital Association. This counterintuitive move reflects a calculated bet that market dislocation will create favorable entry points for a large institutional investor with patient capital.
Anton Orlich, CalPERS' managing investment director for private equity, outlined the strategic rationale in a presentation to the fund's investment committee. Orlich framed the opportunity as CalPERS becoming a "preferred solution provider in a period when some LPs are pulling back commitments." This approach directly addresses a structural problem within CalPERS' private equity program: the fund has materially underperformed venture benchmarks over two decades. Between 2000 and 2020, CalPERS achieved annual returns of just 0.49% in venture investing, substantially trailing market returns. Orlich characterized this period as a "lost decade," during which the fund missed significant bull market vintage years that would have delivered stronger investment performance.
Currently, venture capital comprises only 1% of CalPERS' $55 billion private equity portfolio, representing approximately $758 million in net asset value. Recent performance has been particularly weak, with CalPERS' venture investments declining 24.8% over the last year, compared to a −4.7% return on the broader PE portfolio. The fund's historical allocation bias toward public markets and real assets such as property has left its venture exposure minimal relative to its overall capital base. By increasing VC commitments during a period of LP retrenchment, CalPERS aims to establish significant positions in a market where available capital is constrained and valuations have normalized following the excesses of 2021, when venture exit activity reached record levels.
The timing of this expansion follows substantial market deterioration: the IPO market froze and technology stocks cratered in 2022, creating a stark contrast to the record-breaking exit activity of 2021. CalPERS' strategy appears designed to capture value through a market cycle where the fund's substantial balance sheet and long-term liability matching horizon provide competitive advantages over smaller or more pressured institutional investors. The pension fund's willingness to deploy capital into venture despite recent underperformance and current market turmoil reflects confidence that disciplined capital deployment during distressed periods can generate superior long-term returns.
Anton Orlich, CalPERS' managing investment director for private equity, outlined the strategic rationale in a presentation to the fund's investment committee. Orlich framed the opportunity as CalPERS becoming a "preferred solution provider in a period when some LPs are pulling back commitments." This approach directly addresses a structural problem within CalPERS' private equity program: the fund has materially underperformed venture benchmarks over two decades. Between 2000 and 2020, CalPERS achieved annual returns of just 0.49% in venture investing, substantially trailing market returns. Orlich characterized this period as a "lost decade," during which the fund missed significant bull market vintage years that would have delivered stronger investment performance.
Currently, venture capital comprises only 1% of CalPERS' $55 billion private equity portfolio, representing approximately $758 million in net asset value. Recent performance has been particularly weak, with CalPERS' venture investments declining 24.8% over the last year, compared to a −4.7% return on the broader PE portfolio. The fund's historical allocation bias toward public markets and real assets such as property has left its venture exposure minimal relative to its overall capital base. By increasing VC commitments during a period of LP retrenchment, CalPERS aims to establish significant positions in a market where available capital is constrained and valuations have normalized following the excesses of 2021, when venture exit activity reached record levels.
The timing of this expansion follows substantial market deterioration: the IPO market froze and technology stocks cratered in 2022, creating a stark contrast to the record-breaking exit activity of 2021. CalPERS' strategy appears designed to capture value through a market cycle where the fund's substantial balance sheet and long-term liability matching horizon provide competitive advantages over smaller or more pressured institutional investors. The pension fund's willingness to deploy capital into venture despite recent underperformance and current market turmoil reflects confidence that disciplined capital deployment during distressed periods can generate superior long-term returns.
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