Experienced CEO and founder of How Women Lead, a venture capitalist, and a sought-after speaker on female entrepreneurship, recently shared insights on the allocation strategies of pension funds. With about $40 trillion in assets under management, pension funds saw a 6.14% loss in 2022, raising concerns about their ability to pay retirees in the future. This loss has been attributed to poor returns on private equity allocations, with some funds missing out on potential returns due to underallocation to ventures.
According to an article in the Financial Times, pension funds like CalPERS are looking to expand their venture capital allocation to improve returns for pensioners. As a venture capitalist focusing on women founders, the speaker believes that pension funds could learn from emerging managers in the venture capital space. Emerging managers, defined as GPs raising their first through fifth institutional fund or coming from underrepresented backgrounds, have proven to be capable of driving high returns by investing in early-stage companies with high growth potential.
The speaker emphasizes the importance of supporting companies built by diverse founders, including women and women of color, at scale. By prioritizing diversity, pension funds may be able to unlock untapped potential and generate higher returns. For example, CalSTRS has a longstanding emerging manager program in place to partner with diverse investment managers, and their recent partnership with Sapphire Partners aims to manage new emerging manager VC investments.
The speaker suggests that pension funds should lower barriers for funds looking to invest in scalable, high-tech companies run by diverse founders. By reevaluating risk metrics, hiring and promoting decision-makers from underrepresented groups, and ensuring bias reduction strategies, pension funds can maximize their returns and better align with the values of the communities they serve. The speaker also highlights the importance of understanding the potential biases in investment decisions and learning from successful VCs that prioritize diverse founders.
In conclusion, with pension funds underallocating to private equity, there is an opportunity for them to assess new funds and make connections with diverse general partners. By understanding the impact of diversity on investment returns, pension funds can enhance their performance and tackle the challenges of underfunded retirement plans. The speaker’s insights serve as a call to action for pension funds to leverage the expertise of emerging managers and prioritize investments in companies led by diverse founders to unlock value and drive sustainable growth.
