By David G. Barry
Venture capital and biotech stocks are among the reasons that the San Francisco Employees Retirement System (SFERS) is down 11.4% in 2022.
Despite those factors, the $32.5 billion system has committed to backing three funds from Versant Ventures, a biotech-focused venture firm.
In materials presented to the SFERS Board, Chief Investment Officer Allison Romano said that SERS earlier this month committed $35 million to Versant Venture Capital IX, L.P., $17.5 million in Versant Voyageurs III, L.P. and $17.5 million in Versant Vantage III, L.P. SFERS Board had approved a commitment of up to $75 million to the three funds.
Versant in April 2021 closed the most recent iterations of these three funds at a total of $950 million. Versant Venture Capital is Versant’s primary global biotech fund, while Versant Voyageurs is used to co-invest alongside the main fund in a select number of Series A opportunities. Versant Vantage will be used primarily to invest in Series B or later rounds of existing Versant portfolio companies that are nearing a liquidity event. The materials did not say whether SFERS was an investor in those prior funds.
According to data presented by Romano, SFERS’ private equity portfolio – which includes venture capital – is down 7.19% for the calendar year. It accounts for 31.7% of the portfolio, above its 23% target allocation. Public equity, meanwhile, has posted a negative 30.25% return and fixed income has fallen 11%. SFERS has a 29.3% allocation to public equity, below its 37% target. The only bright spots for SFERS are private credit, which is up 4% and real assets, which has risen 15.6%. It is currently underweight by 3% to private credit and overweight to real assets – 26.3% to a 20% target.
In her materials, Romano,who took over as CIO earlier this year, said that the real asset results have benefited from exposure to private market real estate – specifically the industrial/multifamily sector – and energy. In addition to private credit, Romano said SFERS also has been helped by the performance of buyout funds and the macro, relative value, quantitative and diversifying strategies within its absolute return portfolio.
SFERS’ public equity portfolio has been particularly hit by exposure to growth and biotech stocks and an underexposure to energy stocks. SFERS also has been hurt by investments in fixed income, emerging market debt, late-stage venture capital, China-related private equity and two strategies within its absolute return portfolio that it is de-emphasizing: equity-based and spread-sensitive credit.