II Essential Allocator

The Essential Allocator

July 16, 2021

Alicia McElhaney

We’re Hearing...

→ Location, Location, Location: When you operate a fund in a venture capital hub like San Jose, it’s almost a given that you’ll invest in the asset class. 


The city’s Federated City Employees’ Retirement System and Police and Fire Department Retirement Plan, led by CIO Prabhu Palani, started their VC program back in 2018, allocating 4 and 5 percent to venture respectively. 


“At San Jose, we are ground zero for VC investments and this has been a tremendous advantage,” Palani said. “Being in the heart of Silicon Valley has provided us unprecedented access to wealth creation. Our location also means that our public trustees are drawn from a pool of investment talent located in the Bay Area, another source of unfair advantage to us.”


Three years into the program, Palani said things are progressing steadily. Given the growth (and competition) in the VC sphere, Palani said his team wanted to be “thoughtful” in how they approach the asset class before taking the plunge. 


Over the past year, the two funds have been “busy” implementing their new investment framework, which includes diversification across vintage, stage, and industry, with a tilt toward early-stage investments, because those valuations “have not increased exponentially.” The fund favors investors who are long-term partners, rather than the “flavor-of-the-month,” Palani said, adding that they have both direct and fund-of-fund investments. 


The funds have made several allocations in recent years, including to early-stage investor Canvas Ventures’ third fund, Northgate Venture Partners’ ninth fund, and Top Tier Capital Partners’ ninth fund, plan documents show


Palani credited his board with having a hand in the program’s success so far. “Having investment professionals on our boards ensures that we can critically evaluate investment opportunities while keeping in mind the realities of the marketplace,” Palani said. “GPs are often amazed at the depth of our due diligence and the speed with which we can execute.”


The two funds’ board members include Elaine Orr, who also sits on the board at activist investment firm Engine No. 1; Eswar Menon, who founded asset manager Harper Capital Management; and Andrew Lanza, partner at the Berkeley Catalyst Fund.


“Ultimately this is a people business,” Palani said. “Success of a good venture program begins and ends with being associated with the right talent – venture capitalists, entrepreneurs, and the right support system.”

→ Richmonds Web: Spider Management Company — the University of Richmond’s $5.5 billion investment office that also manages assets on behalf of other institutions — is searching for an investment manager. The new hire will work across asset classes, performing quantitative portfolio analyses, contributing to investment decisions, and mentoring junior staffers. Apply here


Searching for your next great hire? Send me the deets. Essential Allocator reaches over 5,600 industry pros. Odds are that at least one of them is — or knows — a good fit for your gig.

→ Allocators, Assemble: The next set of Institutional Investor’s regional roundtables is less than a month away. If you’re on the West Coast, the San Francisco roundtable will be held at the St. Regis Hotel on August 4 and 5. CalSTRS’s deputy CIO Scott Chan will be kicking off the event.


Meanwhile, if you’re down south, might I recommend the Atlanta roundtable? It’ll be held on the same dates at the Four Seasons Hotel. I’ll be there if you’d like to meet up. Just let me know


Register for both events here.

We’re Reading...

→ IN THE MONEY: Got investment regrets? According to researchers at the Stanford Global Projects Center, you may be subconsciously making investment decisions to minimize the chances of discussing underperformance with your board or taking a hit to your reputation. Survey respondents said they believed GP experience was the biggest driver of success for a private equity investment, while poor leadership and culture was the biggest source of regret following a bad investment.


→ IN THE BIZ: Vanguard made history this week. The 46-year-old asset manager made its first acquisition on Tuesday, according to the Financial Times. The firm bought Just Invest, a California boutique wealth management company that touts a direct indexing product. The acquisition comes at a time when Vanguard’s competitors are also moving into direct indexing: BlackRock and Morgan Stanley acquired direct ETF companies in the past year — moves that might bring the strategy from the wealthy elite to the mainstream.


→ EVERYTHING ELSE: What does it really mean to invest in infrastructure? Should the focus simply be on roads and bridges, or do things like advanced manufacturing, energy efficiency improvements, and home health services also matter? The Atlantic explores the complicated political history of infrastructure — and its French origins.

Institutional Investor

Alicia McElhaney, Senior Staff Writer


With assistance from Amy Whyte and Jessica Hamlin
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