Here are the winners in CalPERS’ $1.1bn VC bonanza

Lightspeed Venture Partners was the biggest beneficiary of CalPERS’ largesse, followed by Sequoia Capital and Bessemer Venture Partners.

Making up for several years of underinvestment in venture capital, the California Public Employees’ Retirement System committed more than $1.1 billion to 15 venture vehicles last year.

That’s according to Venture Capital Journal’s analysis of reports prepared by consultant Meketa Investment Group for the US’s largest public pension.

Overall, CalPERS put nearly $17 billion to work in private equity last year, with venture capital funds accounting for 7 percent of that total. The largest portion (76 percent) went to buyout funds, followed by growth equity (11 percent) and opportunistic strategies (6 percent).

On the venture side, Lightspeed Venture Partners was the biggest beneficiary of CalPERS’ largesse, securing $400 million for three different funds, followed by Sequoia Capital ($282 million for four funds) and Bessemer Venture Partners ($150 million for two funds).

Rounding out the list of managers that got checks from CalPERS were Goodwater Capital ($100 million for two funds), Bond Capital ($75 million for one fund) and Base10 Partners ($50 million for a single fund). CalPERS also committed a combined $120 million to funds managed by firms whose names were undisclosed.

Meketa’s reports show that the pension put more money to work in H1, but backed more funds in H2. It committed $600 million to six funds in the first half of 2022, and $555 million to nine funds in the second half.

CalPERS is going to have to put a lot more money to work to reach its 6 percent target for venture. VC accounted for just 1.5 percent of the net asset value of its PE portfolio, or $754 million out of $50.3 billion, as of September 30, according to Meketa.

Leading the effort is Ben Lee, who came aboard as head of venture capital in November 2020 and who was tasked with investing about $1 billion a year in VC over the ensuing five years. It was a major shift for CalPERS. Eight years earlier it moved to cut its exposure to venture capital from about 7 percent of its PE portfolio to about 1 percent, citing the poor performance of past investments and inability to access the best managers.

Yup Kim, CalPERS’ head of investments, private equity, said in an interview with Venture Capital Journal in January that the decision to largely opt out of VC meant the pension bet against the asset class when it was posting its strongest returns. “Silicon Valley is in our backyard, and we missed out on billions of dollars of equity value created over many years because of our lack of exposure to the venture asset class,” he said.

About the same time that CalPERS reduced its exposure to VC, it also cut back on the amount it invested in private equity overall. Chief investment officer Nicole Musicco, who was hired in February 2022, said last September that the years between 2009 and 2018 were a “lost decade” in which underinvestment in private equity cost CalPERS between $11 billion and $18 billion in returns.

CalPERS is now actively growing its PE exposure. It boosted its PE target allocation from 8 percent to 13 percent, effective July 1, 2002. Its PE portfolio NAV accounted for 11.4 percent of CalPERS’ total assets as of September 30.

CalPERS’ strategic plan for private equity calls for it to increase capital deployment (about $10 billion to $15 billion); increase cost efficiency through no/low fee co-investments and customized investment accounts; diversify its overall portfolio by adding more venture, growth equity and mid-market buyout strategies; and maintain/enhance relationships with high-quality managers, Meketa said in its report.

A CalPERS’ official declined to comment beyond the report.