Key Takeaways
- • San Jose's two major pension funds—the City of San Jose Federated City Employees' Retirement System and the City of San Jose Police and Fire Department Retirement Plan—have hired Ashby Monk, executive and research director of the Stanford Global Projects Center, to advise on venture capital strategy and portfolio construction.
- • The police and fire department plan has allocated 5 percent of assets under management to venture capital, while the city employees' plan has allocated 4 percent, though neither fund has yet deployed these capital allocations as of the announcement date.
- • Monk has recommended a "barbell approach" to venture capital investing, positioning the funds to make both early-stage and late-stage venture capital investments while leveraging their geographic proximity to Silicon Valley.
- • The police and fire department plan manages $3.71 billion in assets as of July 31, 2018, with a one-year return of 12.1 percent, underperforming its 14 percent policy benchmark; the fund had previously allocated 8 percent of assets to private equity strategies as of December 31, 2017.
- • The venture capital allocation is being integrated into the funds' broader private equity program, with the investment teams still strategizing on deployment mechanics for the allocated capital.
Summary
Two San Jose pension systems are positioning themselves to enter venture capital investing by enlisting Ashby Monk, a Stanford-based researcher and executive, as a strategic adviser. The City of San Jose Federated City Employees' Retirement System and the City of San Jose Police and Fire Department Retirement Plan engaged Monk to develop a business plan and investment framework for venture capital allocation. Monk, the executive and research director of the Stanford Global Projects Center, presented his preliminary thinking to both funds on September 6, 2018, before the formal announcement.
The police and fire pension plan has committed 5 percent of its assets under management to venture capital, while the city employees' plan has allocated 4 percent to the asset class. As of July 31, 2018, the police and fire plan managed $3.71 billion in total assets, generating a one-year return of 12.1 percent—a figure that underperformed the fund's 14 percent policy benchmark according to an evaluation report from investment consultant Meketa Investment Group. Neither fund has yet deployed the capital allocated to venture capital; Prabhu Palani, the systems' chief investment officer, confirmed that the investment team remains in the strategic planning phase regarding deployment mechanics.
Monk recommended a "barbell approach" to venture capital investing, whereby the funds would simultaneously pursue early-stage and late-stage venture capital opportunities. This strategy capitalizes on the funds' unique geographic advantage as large institutional investors located in proximity to Silicon Valley, positioning them to access venture returns without relying on traditional venture capital fund intermediaries. The venture capital initiative is being structured as part of the funds' broader private equity program. The police and fire plan had allocated 8 percent of assets to private equity strategies as of December 31, 2017, indicating that venture capital represents a subset of the larger alternatives allocation strategy rather than an entirely new commitment.
The police and fire pension plan has committed 5 percent of its assets under management to venture capital, while the city employees' plan has allocated 4 percent to the asset class. As of July 31, 2018, the police and fire plan managed $3.71 billion in total assets, generating a one-year return of 12.1 percent—a figure that underperformed the fund's 14 percent policy benchmark according to an evaluation report from investment consultant Meketa Investment Group. Neither fund has yet deployed the capital allocated to venture capital; Prabhu Palani, the systems' chief investment officer, confirmed that the investment team remains in the strategic planning phase regarding deployment mechanics.
Monk recommended a "barbell approach" to venture capital investing, whereby the funds would simultaneously pursue early-stage and late-stage venture capital opportunities. This strategy capitalizes on the funds' unique geographic advantage as large institutional investors located in proximity to Silicon Valley, positioning them to access venture returns without relying on traditional venture capital fund intermediaries. The venture capital initiative is being structured as part of the funds' broader private equity program. The police and fire plan had allocated 8 percent of assets to private equity strategies as of December 31, 2017, indicating that venture capital represents a subset of the larger alternatives allocation strategy rather than an entirely new commitment.
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