Explaining Southern California's economy

CalPERS just struck fear in the hearts of venture capitalists everywhere

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The California Public Employees' Retirement System in Sacramento, California. The fund may severely cut back its venture capital investments.

CalPERS, the gigantic California public workers' pension fund, has announced that it's going to to review the venture-capital component of alternative investments in its $230-billion overall portfolio. This follows on the heels of a much-discussed paper put out by the Kauffman Foundation earlier this year, in which the organization — which is devoted to promoting entrepreneurship — revealed that its VC investments has seriously underperformed in the past decade.

I wrote a feature about this in May. In January, CalPERS announced that it made only a 1.1-percent return on its investments, missing its target return of 7.75 percent by a wide margin. One of the reasons it in alternative asset classes like VC in the first place is that it can't meet its return objectives otherwise.

The fundraising aspect of being a VC has gotten pretty challenging. Some VCs seem to be adapting to this "new normal," while others appear content to live at the top of the pile and uses their brand-name status to vacuum up most of the available money. But they all rely on large funds like CalPERS to fuel their efforts to find the next Google or Facebook.

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