Should CalPERS Have Chosen Carlyle’s Bob Grady?

There’s been a lot of talk about Joseph Dear, the new chief investment officer at CalPERS, who was recruited from his post as executive director of the Washington State Investment Board.

Yet no one has really addressed what it means that Bob Grady, a partner at the Carlyle Group and former chair of the National Venture Capital Association, wasn’t selected for the job, after sources told The Wall Street Journal in December that he was the frontrunner. It’s also not clear what it means for Grady himself. (Grady has not responded to several requests from peHUB to speak about the issue.)

As industry observers already know, Grady is chairman of Carlyle’s U.S. growth capital group, Carlyle Venture Partners. That group saw heavy cuts during Carlyle’s layoffs in early December, including the closure of its Menlo Park office. Left is a small office in San Francisco, where Grady is based and where he has given up day-to-day operational control to become Carlyle’s West Coast lobbying/policy/etcetera guy.

Given Grady’s background in politics — for example, Grady once worked in the Office of Management and Budget under Bush 41 — his Carlyle role would have been a plum one were John McCain elected president. Given Grady’s very public endorsement of McCain and Washington’s general skepticism over the trustworthiness of the financial industry right now, however, I’m not so sure that’s still as true.

Beyond what the job might have meant for Grady personally, it’s worth asking what having Dear in CalPERs’ CIO seat will mean for the private equity industry. WSIB has done well in recent years investing in the megabuyout funds, and Dear no doubt has strong relationships with many of their managers. In fact, Blackstone Group’s Stephen Schwarzman said something interesting on the day Dear’s appointment was announced last week: “He’s smart. He’s careful and he’s charming.” Likely to Dear’s chagrin, Schwarzman also added that Dear is “easy to deal with.”

I’m not sure the news is as good for venture capitalists.

Though about 10% percent of WSIB’s private equity portfolio was comprised of venture stakes as November 7, 2008, its last quarterly report to be published online, WSIB seems not to have much appetite — or time — for early-stage investors. According to the WSIB’s most recent IRR report from June 2008, just four venture capital funds have received fresh capital from the pension since 2005, and three of them look very little like venture funds. In 2005, WSIB gave Menlo Ventures a $150 million commitment for its $1.2 billion Menlo Ventures X fund. When New Enterprise Associates — once an early-stage stalwart — closed on a stage-agnostic $2.5 billion fund in 2006, $50 million of it came from WSIB. And the WSIB committed $30 million to Oak Investment Partners XII, which closed with $2.5 billion in 2006.

The only early-stage venture capital firm to attract capital from WSIB in recent years is OVP Venture Partners, which locked down $40 million from the pension for its seventh, $254 million fund, closed in 2005. And likely, that commitment had much to do with its regional focus. OVP is based near Seattle in Kirkland, Wash., and chiefly invests in startups based in the Pacific Northwest. WSIB has a “strong commitment to facilitate access to and awareness of quality in-state investment opportunities,” according to its site.