Key Takeaways
- • The University of California has committed billions of dollars to venture capital funds since 2000 and has realized net losses of hundreds of millions on those investments, according to an exclusive report by Ben Bergman.
- • UC's venture capital commitments declined significantly from $2.63 billion in 2014 to $2.1 billion in 2017, reflecting a strategic pullback from underperforming VC allocations.
- • UC Investments has invested over $231 million in Bow Ventures Fund I—a joint venture between UC and Bow Capital established in 2016—with negative returns to date, exemplifying the broader VC underperformance issue.
- • The University of California manages a $190 billion endowment and pension portfolio and has taken additional cost-saving measures, including divesting from hedge funds, signaling a broader reassessment of alternative asset allocations.
- • UC's experience reflects a long-standing industry challenge: public equity markets have consistently outperformed average venture capital fund returns over the past 15 years, undermining the historical case for VC as a core institutional allocation.
Summary
The University of California's venture capital investment strategy has generated significant losses despite multi-billion dollar commitments over more than two decades. According to an exclusive investigation by Ben Bergman, UC has invested billions in VC firms since 2000 but has lost hundreds of millions on those positions—a striking performance gap for one of the nation's largest institutional investors managing a $190 billion portfolio across its endowment and pension funds.
UC's VC commitment levels reflect a marked retreat from the asset class. The institution committed $2.63 billion to venture funds in 2014, a figure that contracted to $2.1 billion by 2017 as UC reassessed its alternative investment strategy. A concrete example of this underperformance emerges in UC's partnership with Bow Capital: since 2016, UC Investments has deployed more than $231 million into Bow Ventures Fund I, a joint venture between the two parties, yet the fund has failed to generate positive returns for UC to date.
The broader context reveals structural challenges within venture capital as an institutional asset class. Academic and industry research demonstrates that public stock markets have outperformed the average venture capital fund consistently over the past 15 years, and returns have lagged behind investors' baseline expectations for more than a decade. This performance gap has prompted institutional reassessment across the sector.
In response to these dynamics, UC has undertaken additional cost-saving measures and portfolio optimization efforts. Most notably, UC Investments—the $190 billion manager of the University of California's endowment and pension—has divested from hedge funds entirely, signaling a broader recalibration of its alternative investment posture. These moves underscore how even flagship institutional investors with substantial resources and expertise face structural headwinds when allocating to alternative assets, particularly venture capital, during an era when public equity returns have proven more resilient and consistent.
UC's VC commitment levels reflect a marked retreat from the asset class. The institution committed $2.63 billion to venture funds in 2014, a figure that contracted to $2.1 billion by 2017 as UC reassessed its alternative investment strategy. A concrete example of this underperformance emerges in UC's partnership with Bow Capital: since 2016, UC Investments has deployed more than $231 million into Bow Ventures Fund I, a joint venture between the two parties, yet the fund has failed to generate positive returns for UC to date.
The broader context reveals structural challenges within venture capital as an institutional asset class. Academic and industry research demonstrates that public stock markets have outperformed the average venture capital fund consistently over the past 15 years, and returns have lagged behind investors' baseline expectations for more than a decade. This performance gap has prompted institutional reassessment across the sector.
In response to these dynamics, UC has undertaken additional cost-saving measures and portfolio optimization efforts. Most notably, UC Investments—the $190 billion manager of the University of California's endowment and pension—has divested from hedge funds entirely, signaling a broader recalibration of its alternative investment posture. These moves underscore how even flagship institutional investors with substantial resources and expertise face structural headwinds when allocating to alternative assets, particularly venture capital, during an era when public equity returns have proven more resilient and consistent.
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