BUYOUTS-Washington pension's interest in venture capital wanes

Mon Nov 19, 2012 1:07pm EST

* CIO cites limited access to top funds

* Bottom of target range to venture now zero

* $1.3 billion invested in venture, growth capital

By Gregory Roth and Mark Boslet

NEW YORK, Nov. 15 (Reuters-BUYOUTS) - Limited access to top venture funds continues to restrain the Washington State Investment Board from investing in the asset class, according to Gary Bruebaker, the board's chief investment officer.

The state's approach echoes that of the California Public Employees' Retirement System, which earlier this year confirmed plans to foreswear most venture capital investments. The pension cited poor performance and the difficulty of getting enough money into the best funds to make a difference to the overall portfolio.

Washington State's Bruebaker, who oversees $84 billion in assets, said he genuinely likes venture capital. But he finds that top venture firms are reluctant to accept money from giant pensions like his.

"Due to our size, we're never going to be able to get into the best funds because they are not going to come to Washington, sit in front of my private markets committee in an open meeting, with the press in the back, and ask Washington for money," he said in an interview.

The Washington board's main $62 billion pension fund lowered the bottom end of its combined venture and growth capital allocation target range to zero in 2009. The top end of the range was cut to 10 percent. Prior to 2009, the range was 5 percent to 15 percent.

Currently, 8.1 percent, or $1.3 billion, of the fund's $16 billion private markets portfolio is invested in venture and growth capital, a level Bruebaker predicts will gradually fall.

Washington State has indeed been a reluctant venture investor in recent years. In 2011, the board committed directly only to Menlo Ventures XI. Before that, its most recent direct venture investments dated to 2006 and included only New Enterprise Associates 12, Menlo Ventures X and OVP Venture Partners VII.

"If, by chance, we ever get an opportunity to invest in a top-quartile venture fund, we will invest with them," said Bruebaker. But, he added, "we are not going to chase investments because the odds are against us."

At CalPERS, the chief investment officer Joe Dear said in August that his pension planned to reduce its venture target allocation to less than 1 percent for two reasons.

"One is that venture has been the most disappointing asset class over the past 10 years as far as returns," Dear said, "and second, it's very difficult for a large fund like CalPERS to gain access to the best venture partners in the size that makes a difference to our performance." CalPERS had $2.1 billion of its $240 billion portfolio in venture capital.

While Washington State plans to re-up with its existing top-quartile venture managers, Bruebaker doesn't see the opportunity to make new venture investments on a "level playing field" due to access issues.