Venture capital isn't dead, but it is riddled with ailments.
Returns are lousy. Fundraising is down. And exits — both initial public offerings and mergers and acquisitions — are down from 2011, even with 2012's monster Facebook IPO.
This has some pension fund investors wondering whether the asset class is worth its extended period of illiquidity when funds are performing so poorly.
“Corporate pension funds that invest in private equity in a systematic manner maintain allocations to venture capital, but the reality is a lot of them are rethinking” their dedicated venture capital allocation, said Sanjay R. Mansukhani, senior manager and research consultant in the New York office of consulting firm Towers Watson & Co.
The $248.1 billion California Public Employees' Retirement System is in the process of reducing venture capital to 1% of its private equity portfolio over the next five to 10 years, down from the current 7%, said CIO Joseph Dear at a CalPERS forum in December.
“Venture's very, very tough. It may be one of the most difficult fields in which to deploy capital and to achieve success” due to disappointing returns over the past 10 years and the few top-performing firms not accepting public plans as limited partners, Mr. Dear said, according to a forum transcript.