CalPERS changes and VC allocation

Dan Primack at Fortune continues his unrelenting chase of CalPERS’ (California Public Employees’ Retirement System) with $229B assets under management (AUM). While Dan may not be as impressed with CalPERS’ transparency and its past, having had a couple of brief conversations with their “new” CIO Joe Dear and a CalPERS board member it appears their new leader is cleaning house as fast as its bureaucratic system allows him to. I too have found out those boats (pension funds) turn very slowly, and demanding it to move faster is a waste of precious energy.

Yet CalPERS is a large and important investor in Venture Capital with 8% or $2.5B in commitments of a total of $31.4B in Alternative investments dedicated to the sector.

The performance of Venture Capital comprised of a mere 1.1% of Total Assets Under Management is not really something to write home about, good or bad. Unless you recently discovered – like I did – that the deplorable (minus 4% average ten-year IRR) performance of Venture Capital comes from how we build the economic systems in finance and thus is much more symptomatic across other asset classes.

Simply put: any financial system using a laissez-faire economic system will inevitably turn subprime. And thus the asset allocation, while increasing in value because of the sheer size of the financial gamble it creates, will at the same time be hollowed out by the deflation of quality of its underlying (subprime) asset.

So unless pension funds really understand the money trail that feeds the underlying assets they will just be as successful as I was in finding a wife (i.e. substance, predictability, sustainability – a future) when I was 18 years old.


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