CalSTRS has good news for emerging VCs

Sapphire Partners will assume investment management responsibilities of five of CalSTRS' existing new and next-generation manager funds.

It’s tough out there for new venture firms raising their first or second funds, but we have some good news in an otherwise downbeat fundraising market. The California State Teachers’ Retirement System and Sapphire Partners are partnering to invest in emerging managers focused on early-stage venture capital.

As a part of the partnership, Sapphire Partners will assume investment management responsibilities for five existing funds in the CalSTRS New & Next Gen Manager program, which was previously managed by Invesco.

While Invesco invested in emerging managers in across buyout, growth and venture capital, Sapphire Partners will focus on early-stage VC. Sapphire said it “will also have capital available to continue making commitments to new and emerging venture capital managers,” although it did not reveal the dollar amount.

CalSTRS launched its emerging manager program in 2005 and has committed a total of $1.05 billion to five separate funds. Of that amount, the pension system has officially contributed a combined $632 million, according to its June 2022 PE portfolio performance report. In return, CalSTRS has received a combined $450 million in capital distributions. The market value of the remaining funds is about $970 million. The distributions plus the remaining value of the funds add up to about $1.4 billion, or 2.24x the capital CalSTRS contributed, according to Venture Capital Journal’s calculation.

Of the five funds, the vehicle with the highest internal rate of return is CalSTRS New & Next Gen Manager Fund IV, a vintage 2017 fund with an IRR of 41.35 percent, as of June 30, 2022, according to CalSTRS.

The pension system does not disclose the names of the emerging managers within each of the New & Next Gen Manager funds.

LP Beezer Clarkson Sapphire Partners
Beezer Clarkson, Sapphire Partners

“Emerging managers are critical to the venture ecosystem and an LP’s portfolio, and both CalSTRS and Sapphire Partners have long histories of supporting them on their journey,” Sapphire Partners partner Beezer Clarkson said in a statement. “Sapphire believes we are well positioned to identify the next class of rising talent early and help them grow and scale their businesses.”

Christopher Ailman, CalSTRS’ chief investment officer, said, “One of CalSTRS’ primary goals since the [emerging manager] program’s inception in 2005 is to partner with diverse GPs that represent the demographics of California, and we know greater diversity is a natural by-product of focusing on small emerging managers. This partnership with Sapphire aligns with our long history of finding diverse investment managers. We look forward to partnering with Sapphire on this important mandate.”

Sapphire Partners has been investing in early-stage venture capital funds in the US, Europe and Israel since 2012. The firm is part of Sapphire, a specialized technology investment firm with about $11 billion in assets under management.

CalSTRS, which manages pensions for California’s public school teachers, had $321.3 billion in assets under management as of July 31.