The University of California Board of Regents has reduced the number of managers across all asset classes as a part of Chief Investment Officer Jagdeep Bachher’s “less is more” approach.
Despite exiting a number of venture capital managers, the system remains committed to the asset class.
UC has invested $436 million to seven 2018 vintage Sequoia Capital funds. Other venture funds added since 2017 are GGV Capital; the debut fund from NeoTribe Ventures, founded by Krishna “Kittu” Kolluri, who was previously with New Enterprise Associates; Mission Bay Capital, a seed-stage firm investing in life sciences companies emerging from UC San Francisco; and Bow Ventures, a $150 million fund backed entirely by UC Regents.
Commitment sizes for the newer funds range greatly. UC pledged as little as $5 million to Mission Bay and $20 million to NeoTribe, while Sequoia’s more than $6 billion third worldwide growth fund received a commitment of $400 million from UC.
Letting UC participate in 2018 funds is a major departure for Sequoia. For many years, the prominent firm shunned public institutions after several lawsuits in the early 2000s mandated public LPs to publish fund returns.
Sequoia was one of the few firms that wanted to keep its fund information confidential. It went as far as asking University of California and University of Michigan to leave or sell its funds, though both LPs remained with Sequoia because they agreed to a limited disclosure.
But it appears that Sequoia decided to let several public LPs into its 2018 mega fund. In addition to UC, Washington State Investment Board committed $350 million and Alaska Permanent Fund pledged $200 million to Sequoia’s mega fund.
A spokesperson for Sequoia did not respond to a request for comment.
Venture has been a strong performer for UC, returning an aggregate of 19 percent, 11.2 percent and 16.6 percent over one-year, three-year, five-year periods, according to the March 2019 investment committee presentation. The entire private equity portfolio returned 18.2 percent, 16.0 percent and 15.7 percent over the same time periods.
“We don’t anticipate that aggregate private equity returns will remain at this level given the amount of dry powder that’s in the market,” John Beil managing director of private equity, said during the March 2019 meeting. “But we anticipate that we will continue to outperform the public markets, or at least that’s our strong hope.”
UC continues to act on this conviction with plans to double its allocation to private equity assets over the next three to six years. University system’s $68 billion pension has a target of 10 percent private equity allocation, up from 5 percent currently, while the $12.8 billion endowment has a goal of increasing private equity’s portion to 22.5 percent from 13.3 percent.
Of the $5.2 billion total private equity portfolio, $1.8 billion or 35.6 percent is allocated to venture capital and growth equity, which UC defines as late-stage investments. Venture Capital Journal could not assess how the allocation to VC assets has changed over time because up until recently UC Regents did not break out growth equity from venture capital and buyouts.
UC Regents did not respond to a request for comment.
Firms with funds that appeared on UC’s 2015 private equities investments list but not on December 2018 list, the most recent date available, are Accel Partners, OrbiMed Advisors and Shasta Ventures.