Experienced CEO and founder of How Women Lead, a venture capitalist and a speaker on female entrepreneurship, is concerned about pension funds’ poor returns on private equity investments, resulting in a loss of funds for retirees. Anton Orlich from CalPERS believes the fund missed out on potential returns by not allocating more to venture capital. The increasing interest in venture capital from pension funds has caught the CEO’s attention, who believes there are lessons to be learned from emerging managers in the venture capital space.
Emerging managers, defined as those raising their first through fifth institutional fund, have shown high performance potential, with over 70% of the best-performing funds in recent years falling into this category. These managers tend to invest in earlier-stage companies with high growth potential and diverse leadership, which can lead to outperformance. Prioritizing diversity in investments could lead to better returns, as shown by research indicating higher revenue generation by startups led by underrepresented founders. Pension funds like CalSTRS are already prioritizing diversity and emerging managers in their investment strategies.
Pension funds have an opportunity to support companies founded by diverse entrepreneurs, including women and people of color, at scale, potentially enriching the communities where pensioners live. The CEO sees CalPERS’ expansion into venture capital as a positive step, with further potential for increased returns by investing in scalable, high-tech companies run by diverse founders. By lowering barriers for diverse investments, funds could see improved performance and better capital utilization.
Diversity in decision-making is key to performance and innovation, as shown by research indicating higher returns from funds managed by diverse general partners. By reevaluating risk metrics, hiring and promoting women and underrepresented individuals into decision-making positions, pension funds can learn from the venture capital industry’s progress in prioritizing diversity. Learning from studies showing bias in investment decisions can also lead to better outcomes for pension funds by tapping into the potential returns from investing in diverse founders.
In conclusion, pension funds may benefit from reassessing their allocations to private equity and exploring opportunities to connect with diverse general partners. By understanding the impact of investments in diverse founders, funds can potentially unlock additional returns that have historically been left untapped. Given the current underallocation to private equity, now may be a great time for pension funds to explore new investment opportunities and embrace diversity in their decision-making processes. It is important to consult with licensed professionals for personalized investment advice.
