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San Jose Pensions Gear Up to Invest In Venture Capital

The City of San Jose Federated City Employees' Retirement System and the city's Police and Fire Department Retirement Plan have hired Ashby Monk to advise their CIO on the asset class.

  • By Alicia McElhaney

Two San Jose retirement systems are looking to take advantage of their proximity to Silicon Valley by making allocations to venture capital. 

The City of San Jose Federated City Employees’ Retirement System and the City of San Jose Police and Fire Department Retirement Plan have hired Ashby Monk to advise the retirement systems’ chief investment officer, Prabhu Palani, who confirmed the news of the venture capital allocation initiative on Wednesday via email. Monk, who declined to comment further on the announcement, appeared in front of both pension funds on September 6 to discuss his involvement in the plan.

“The mandate I have here is to think about a business plan,” Monk said during that meeting. Monk added that the funds are uniquely positioned to take a “barbell approach” to invest in venture capital. They essentially would make early- and late-stage venture capital investments, Monk said during the meeting.

According to Palani, the city employees’ retirement system has allocated four percent of assets under management to venture capital, while the police and fire plan has allocated five percent of assets under management to the asset class, but the funds have not yet been invested. 

The investment team is still strategizing on how to deploy the capital allocated to venture capital, Palani said via email.

“The allocation to VC is part of the overall private-equity program,” he added.

The police and fire department pension plan managed $3.71 billion as of July 31, according to Palani. The plan’s one-year return was 12.1 percent, but it underperformed a policy benchmark of 14 percent, according to a fund evaluation report prepared by investment consultant Meketa Investment Group. 

The police and fire department plan allocated 8 percent of assets to private equity strategies as of December 31. It is pension fund policy to allocate between three and 13 percent of assets to the strategy.

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Meanwhile, the city employees’ retirement system has roughly $2.23 billion in assets under management, Palani said. The plan’s one-year return was 10.6 percent, compared to the 13.3 percent policy benchmark, according to its Meketa Investment fund evaluation report from December 31.

The city employees’ retirement system had a much lower allocation to private equity in 2017: just 2.8 percent of assets. The fund’s policy is to allocate between four and 14 percent to private equity strategies, with a target of nine percent, the fund evaluation report shows.

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