The California Public Employees’ Retirement System (Calpers) has invested $122m for an undisclosed equity stake in Sports Capital Partners.
The move into venture capital is an unusual one for a pension fund and a bold one at a difficult time for venture capital. For Calpers, it is the third purchase of a stake in a private equity partnership this year.
Calpers is taking over the equity position previously held by JPMorgan Chase Capital as well as providing additional money to the fund. The pension fund said the investment made sense because demographic trends have helped boost demand for sports services and products.
The Sports Capital investment is Calpers’s third direct investment in venture capital firms this year. In January, Calpers bought an equity stake in Texas Pacific Group Ventures for $485m and another in The Carlyle Group for $425m.
Direct investment in private equity funds is an unusual move for pension funds. It is also a bold one given the difficult investment climate. US pension funds traditionally allocate between five and 10 per cent of their assets under management as limited partners in private equity general partnerships. But many feel they are overexposed to this high-risk sector as a result of the market’s swift downturn.
Not Calpers. It has about $2.2bn committed to venture capital and has long been at the forefront of pension investment in private equity.
Calpers believes its new direct investments into the VCs themselves will allow these VCs to raise funds fast whilst giving Calpers a high level of access and control. And it is keen to use its direct involvent in private equity to take advantage of the low valuations of companies hit by the market downturn.
European pension funds may be tempted to follow suit. PGGM, a big Dutch pension fund, recently beat the WM Company’s weighted average benchmark as a result of its investments in private equity. It returned 3.4 per cent, 0.8 per cent more than the median Dutch fund return of 2.6 per cent.
PGGM invests in private equity through NIB Capital, a daughter company it co-owns with ABP, another Dutch pension fund. NIB Capital has committed assets of E13.5bn and invested assets of E5bn.
However European pension funds’ exposure to private equity has hitherto been conservative. And, despite some increase in recent activity, they are unlikely to show Calpers's level of aggression in forging links with venture capitalists.
Calpers itself is of course no stranger to venture capital. During the 1990s it negotiated with a number of investment firms about investing in their funds. However, it was unhappy about the management fees it would have to pay and consequently did not participate in many of the highest-performing funds.
The pension fund had also entertained ideas about creating its own venture arm. But legal restraints meant that Calpers investors would not have been able to take seats on the boards of their investee companies. Most VCs see board representation as vital to exert some control on company development.
Sports Capital Partners was set up in 1998 by IMG, a sports management firm; David Moross, the fund’s CEO; and Chase Capital Partners. It has so far made six investments: Skip Barber Racing School; Small World Media; Sports.com; SportsYA!; The Golf Warehouse; and Tickets.com.
Calpers is the world’s biggest pension fund and controls assets worth about $170bn.