We’ve spoken in the past about good vintages in private asset classes. Frankly, 2023 and 2024 set up to be fascinating case studies in human behavior because the spread between buyers and sellers continues to build and very few transactions are occurring because of it. It is usually this point in the economic cycle when the wealthiest of the wealthy and the most sophisticated of sophisticated investors really get to work.
In this particular case, Calpers (the largest public pension fund in the United States) is moving in hard on Venture with a likely increase in allocation from 1% to 6%. This is a MASSIVE move and it will obviously take some time, but from a sentiment perspective it should give all investors confidence that there will someday be a bottom. Clearly, Calpers is not perfect, and they specifically underperformed from 2015 to 2020 as they last cut their venture portfolio too early and missed the best parts of the rally. That said, selling is always more difficult to time than buying, and where they saw risk in 2015, they were eventually proven correct. So, as they build back up, are they too early? Time will tell, but an organization the size of Calpers has to do a couple of things that most do not. First of all, they need to be early. Managing the impact of every trade and the execution of their publicly traded assets must be prepared way ahead of their actual activity. Second, they need to be confident of a long runway, otherwise their allocation changes will cost so much that it will have a meaningful impact on performance.
Why do we care? When looking for inflection points in markets surrounded by wildly uncertain crosscurrents and uncertainty, it is important to understand how others are thinking about asset values and valuations. Eventually, no matter the market, stronger hands appear at the bottom when asset prices are too cheap to ignore. We may not be to the bottom yet, but some of those stronger hands are starting to appear.