CalPERS Invests $600 Million to Cash In on ‘Dot-Com’ Bonanza
The California Public Employees Retirement System, looking to grab more “dot-com” dollars for state workers, is making its largest-ever private investment in a year-old San Francisco merchant bank.
CalPERS will spend $100 million for a 10% stake in Thomas Weisel Partners and invest $500 million in several new Weisel-managed funds focusing on new technology, communications and Internet firms. It may commit another $500 million for unspecified new Weisel ventures.
The strategy may encourage other union or public funds to follow suit in looking for creative ways to benefit from the IPO boom without taking undue risks.
“It’s a way to get into more of these smaller venture-capital-type things,” said Joan Payden, who heads Los Angeles-based Payden & Rygel, which manages $30 billion of corporate and municipal pension funds, mostly in fixed-income investments. “People are recognizing we are in a great revolution and the pension funds are trying to take advantage of it.”
The Weisel investment is a big bet on the strategy of Chief Executive Thomas Weisel, who led San Francisco’s Montgomery Securities for more than two decades. Rather than make venture investments on their own, most pension funds invest in large venture capital funds, according to Venture Economics, a research partner with the U.S. National Venture Capital Assn.
“We’re starting a number of businesses that could get spun out individually,” Weisel said.
About 60% of all venture funds raised in the U.S. come from large institutions, especially pension funds. And that’s a lot of money. Last year, venture capital spending doubled to more than $40 billion from the previous year.
“There are some pension funds that have dabbled in making direct investments; the problem is most have been disasters,” Venture Economics Managing Director Jess Reyes said. “They’ve found they aren’t good [venture capitalists].”
Reyes predicted that more pension funds will try to set up parallel funds that can take more risk and be more entrepreneurial than the larger funds they directly control.
Sacramento-based CalPERS, the largest U.S. pension fund, is looking to profit at several points along the immensely profitable stream of firms emerging and going public.
