Silicon Valley Bank shuts down; pension funds, investors measure their losses

Pension funds and institutional investors are taking the measure of their exposure to Silicon Valley Bank, the high-profile venture capital and startup lender shut down Friday by regulators and taken over by the Federal Deposit Insurance Corp.

Almost anyone invested in an index fund may hold Silicon Valley Bank to a tiny degree. For private equity and venture capital firms and their investors, this moment may have as big an impact on the private market world as the 2008 global financial crisis, making investors laser-focused on their managers' liquidity, industry insiders say.

Silicon Valley Bank is one of the biggest bankers to private equity and venture capital general partners and their portfolio companies. Sources and the bank website say that it not only provides debt financing that general partners need to manage their liquidity, including distributions and capital calls, but they and their portfolio companies also have bank accounts with SVB.

"It's pretty substantial. There's quite a bit of panic going on ... SVB was a major bank for the private equity industry, particularly in tech," said Sol Zlotchenko, chief product officer and head of strategy for private markets at Hazeltree, a treasury and liquidity management technology provider.

Portfolio company executives are worried that they won't be able to get access to their bank accounts, he said.

Venture capital and private equity managers including Founders Fund are advising their clients to withdraw their money from Silicon Valley Bank, sources said.

To quell fears rising in the industry, earlier this week Silicon Valley Bank announced a $500 million commitment from growth equity manager, General Atlantic. General Atlantic could not be immediately reached for comment.

Silicon Valley Bank's troubles also caused another big banking player in the private equity industry, First Republic Bank to announce in an SEC filing filed on Friday that it was in good financial shape.

"Silicon Valley Bank was heavily reliant on the tech industry, catering mainly to startups and the investors that fund them" and the bank took a hit when the Fed began raising rates to curb inflation, said Thomas Smale, CEO of FE International, a mid-market tech-focused M&A advisory company, in an email.

"Startups drained their deposits with SVB faster than the bank expected, and new investment had stalled, meaning fresh money wasn't coming into the bank," he said.

Top shareholders in Silicon Valley Bank include Vanguard (11%) and BlackRock (8%) in their various index funds and ETFs. For example, as of Dec. 31, Silicon Valley Bank represented 0.04% of the iShares Core S&P 500 ETF.

Other money managers and pension funds with exposure include State Street Global Advisors, J.P. Morgan and Invesco.

Swedish pension fund Alecta held 4.45% of total outstanding shares, or about $600 million at year end, according to 13-F filings. The plan oversees about $100 billion in assets.

The Government Pension Fund of Japan owned 0.59% of Silicon Valley Bank shares.

Silicon Valley Bank is also held in tiny amounts by pension funds such as California Public Employees' Retirement System, California State Teachers' Retirement System, Ohio State Teachers Retirement System, Colorado Public Employees' Retirement Association, New York State Common Retirement Fund, New York State Teachers' Retirement System, Florida State Board of Administration, New Jersey State Investment Council, Ohio Public Employees Retirement System, Michigan Retirement Systems and Kentucky Retirement Systems, according to data from Bloomberg and Pensions & Investments.

Virtually all Top 1,000 plan sponsors have exposure, both defined benefit and defined contribution plans, as Silicon Valley Bank was a component in the S&P 500 index; the bank was added to Russell 3000 Growth index just last year.

For the Malvern, Pa.-based Vanguard, "This is a blip on Vanguard's radar," said Jeff DeMaso, editor of the Independent Vanguard Adviser newsletter, based in Brooklyn, N.Y., of the effect on Vanguard shareholders.

"What's interesting is that Silicon Valley Bank is in all the Vanguard index funds. The only active fund is Vanguard Growth & Income, which has three different quant managers. It's effectively an index fund. It's noteworthy that a lot of Vanguard active managers avoided buying Silicon Valley Bank shares," he said.

"It's just a reflection of BlackRock and Vanguard being the two biggest players in the index industry," he added.

Some active money managers are also shareholders in Silicon Valley Bank, such as Artisan Partners, Voloridge and Azora Capital. Azora, a hedge fund run by Richard Reyes, based in Miami, held a 5% position, according to recent securities filings.

Artisan Partners held the stock in its actively managed funds.

Among Artisan Partners investors, DC plans with the Artisan Mid-Cap fund as an option include Cintas Corp., KPMG, Genuine Parts Co., Masco Corp. Nissan North America Inc. and S.C. Johnson & Son, Inc.

Silicon Valley Bank is the latest casualty of market distress.

Amid a collapse in cryptocurrency prices and regulatory pressure, another tech-related bank is also losing value.

Silvergate Capital ran a smaller bank that served as a venue for investing in cryptocurrency, and Silvergate liquidated the bank in recent weeks. The parent company remains publicly traded, but shares have dropped roughly 90%.

State of Wisconsin Investment Board and the Canada Pension Plan Investment Board were small holders in Silvergate.

Silvergate preferred shares were also among holdings by BlackRock, Cincinnati Financial, Louisiana Workers Compensation, and Fubon Securities Investment Trust (Taiwan.)

Other investors held 0.1% or less: Midwestern Insurance, Invesco and First Indemnity of America Insurance.