California Emerging Ventures is a venture capital partnership between the California Public Employees Retirement System and Grove Street Advisors of Massachusetts and San Francisco. Calpers’s earlier VC investments have resulted in a net internal rate of return (IRR) of 182%. With more than $168 billion in assets, CalPERS is America’s largest pension fund.
Given the volatile equity markets and expected shakeout in dot.com investments, this vehicle “will not sustain its current high net IRR level, but the performance is evidence that the program is off to a good start and should generate attractive returns for CalPERS over the long term,” wrote Gonder in his proposal to the pension fund’s board.
In October 1998, CalPERS first allocated $350 million to venture capital projects. Of that amount, nearly $55 million has been committed to direct investments in portfolio companies. On December 31, 1999 this investment was valued at $87 million.
Venture capital allocations to partnerships are fully committed 12 months earlier than expected, with commitments of $296 million to approximately 39 partnerships after reviewing 480.
The venture capital fundraising cycle, typically 18 months, has dropped to 12 months, said Gonder. “The increased pace,” Gonder said, “opened a number of additional doors for California Emerging Ventures.”
“A special emphasis is placed on investing in California-based partnerships and portfolio companies,” said Gonder. “The California-based venture capital industry appeared to offer a particularly attractive investment opportunity, as technology-based ventures are driving significant growth.”
Allocating the additional $400 million “takes a couple months or more,” said CalPERS spokesman Brad Pacheco. Fifty-seven percent of these assets will fund in-state companies in the consumer, healthcare, Internet and technology sectors.
Venture capital investments are part of CalPERS’ $10.4-billion alternative investment portfolio, and less than 2% of the total fund.