Key Takeaways
- • LACERA voted at its March 13, 2024 meeting to lower its venture capital and growth equity allocation range from 15%-30% to 5%-25% of its private equity portfolio, according to TechCrunch.
- • The pension's venture portfolio stood at 10.8% of its PE portfolio, below the prior range floor, so the change is expected to free capital for other strategies rather than signal a reduction in existing venture holdings.
- • LACERA's venture subset posted a 2.08x TVPI at year-end 2023, the highest of any PE sub-strategy, and five of its best-performing private equity funds are venture funds.
- • Investment officer Didier Acevedo cited market conditions and a desire for greater investing flexibility as the main drivers.
- • Industry sources view the move as a one-off; StepStone reports rising LP demand for venture exposure, while PitchBook expects LPs to write smaller checks as VC fund sizes shrink.
Summary
The Los Angeles County Employees Retirement Association (LACERA) voted to decrease its allocation range to venture capital and growth equity at a March 13 board of investments meeting, according to TechCrunch. The range moves from between 15% and 30% of the pension's private equity portfolio to between 5% and 25%. LACERA's venture portfolio currently represents 10.8% of its PE portfolio, meaning it is underallocated to the existing range.
The decision is notable given the subset's performance. TechCrunch reports a TVPI of 2.08x at the end of 2023, the highest among the PE portfolio's sub-strategies. As of year-end 2023, the five best-performing funds in LACERA's private equity portfolio were all venture funds, including four from Union Square Ventures with vintages from 2012 to 2016. The pension has also backed Innovation Endeavors, Storm Ventures and Primary Venture Partners, among others.
Investment officer Didier Acevedo attributed the change primarily to market conditions and said the pension wants to be more flexible and dynamic in its investing. Because LACERA sits below its current range, the revision is likely to free capital for other strategies rather than reduce the size of its venture portfolio, TechCrunch reports.
Analysts interviewed by TechCrunch characterized the move as more of a one-off than an early sign of a broader trend. Brian Borton, a partner at StepStone, said he has not heard of other LPs looking to reduce venture allocations and that StepStone is seeing increased LP demand for its venture services. He noted that pensions are generally less reactive than high-net-worth individuals and family offices, and that U.S. public pensions have lagged in building venture exposure. Kaidi Gao, a venture capital analyst at PitchBook, said many LPs have learned not to skip an entire vintage year, but may write smaller checks if managers are raising smaller funds, as Insight Partners and Greycroft have done with recent fund targets. Gao also noted a flight to quality in volatile markets, with institutional LPs defaulting to established managers.
Borton and Gao both expect no significant change in LP allocations to venture this year, though exceptions are likely. Borton said LPs with long-term target allocations are more likely to slow their investment pace or trim manager relationships than cut allocations outright.
The decision is notable given the subset's performance. TechCrunch reports a TVPI of 2.08x at the end of 2023, the highest among the PE portfolio's sub-strategies. As of year-end 2023, the five best-performing funds in LACERA's private equity portfolio were all venture funds, including four from Union Square Ventures with vintages from 2012 to 2016. The pension has also backed Innovation Endeavors, Storm Ventures and Primary Venture Partners, among others.
Investment officer Didier Acevedo attributed the change primarily to market conditions and said the pension wants to be more flexible and dynamic in its investing. Because LACERA sits below its current range, the revision is likely to free capital for other strategies rather than reduce the size of its venture portfolio, TechCrunch reports.
Analysts interviewed by TechCrunch characterized the move as more of a one-off than an early sign of a broader trend. Brian Borton, a partner at StepStone, said he has not heard of other LPs looking to reduce venture allocations and that StepStone is seeing increased LP demand for its venture services. He noted that pensions are generally less reactive than high-net-worth individuals and family offices, and that U.S. public pensions have lagged in building venture exposure. Kaidi Gao, a venture capital analyst at PitchBook, said many LPs have learned not to skip an entire vintage year, but may write smaller checks if managers are raising smaller funds, as Insight Partners and Greycroft have done with recent fund targets. Gao also noted a flight to quality in volatile markets, with institutional LPs defaulting to established managers.
Borton and Gao both expect no significant change in LP allocations to venture this year, though exceptions are likely. Borton said LPs with long-term target allocations are more likely to slow their investment pace or trim manager relationships than cut allocations outright.
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