Analysts say this is likely more a one-off than a sign of LP interest in the venture waning.
The Los Angeles County Employees and Retirement Association (LACERA) voted at its March 13 meeting to reduce its allocation to venture capital.
The Investment Committee resolved to reduce the range of allocations to venture capital and growth stocks from 15-30% of the pension plan's private equity portfolio to 5-25%. LACERA's venture portfolio currently represents 10.8% of his PE portfolio.
This subset has been very successful, with TVPI (a measure of both realized and unrealized gains on fund investments) of 2.08x at the end of 2023, the highest of any private equity portfolio subset. This is a somewhat puzzling move. strategy.
As of the end of 2023, the organization reported that the five best-performing funds in history in private equity portfolios were venture funds, including those with vintages from 2012 to 2016. Also included are four funds from Union Square Ventures, which holds The company also supports the following VCs: Innovation Endeavors, Storm Ventures, Primary Venture Partners and others.
Investment director Didier Acevedo cited market conditions as the main reason for the change. He added that he wants pensions to be more flexible and dynamic in their investments. Given that pensions are currently under-allocated to existing ranges, this move could potentially free up funds for other strategies, as opposed to a strategy of reducing the size of the actual venture portfolio. there is.
Analysts told TechCrunch that the situation is likely more of a one-off than an early sign of an impending trend.
Brian Borton, partner at StepStone, told TechCrunch that while it's impossible to paint a broad brush with the LP community as a whole, LPs such as high net worth individuals and family offices invest more liquidly, while LPs such as pensions are less responsive. He said it was not the point. I've never heard of anyone trying to reduce their allocation to ventures. In fact, StepStone has seen an increase in demand for venture services from LPs, he said.
“The pension funds we are negotiating with see this period of weak funding in the venture asset class as an opportunity to improve access,” Bolton said. “U.S. public pensions have generally been slow to build exposure to venture investments.”
What's more, many LPs learned their lessons after the Great Financial Crisis and now know not to take an entire vintage year off, according to Kaidi Gao, a venture capital analyst at PitchBook. But they may be making smaller investments. Gao said LPs may be more likely to write checks if managers, typically backed by LPs, are raising smaller funds, meaning VCs including Insight Partners and Greycroft have lowered their funding targets in recent days. He said there may be no need to allocate as much money to the strategy.
Additionally, LPs will continue to focus on their existing managers. This trend started in 2022 when the public markets first started to deteriorate, but many VCs held off on raising money for as long as possible. The true scope of LP exits will be felt this year as more VC general partners are forced into the market.
“When there is high volatility, when there is a lot of uncertainty in the market, we see people relying on quality escapes and only relying on what they are most familiar with,” Gao said. “For some LPs, especially institutional investors, [that means] They just defaulted on big brands and funds that have been around for a very long time. ”
This also means that many LPs may not add new manager relationships to their portfolios this year. Bolton added that if LPs pull out, they may reduce commitments rather than allocations.
“These institutions have target allocations and are long-term in nature,” Bolton said. “They're not going to reduce their allocation to ventures. They're going to have to respond to the current market to some extent by slowing down their investment pace or reducing the number of relationships.”
Both Bolton and Gao don't expect much change in venture LP allocations this year, but there are always exceptions.