Why One LP does not want to invest in new venture capital funds
- The Fairfax County Employees Retirement System plans to focus on funds it has previously invested in.
- The pension fund may refrain from investing in new funds as it expects venture capital returns to slow.
- Despite the market outlook, he plans to continue investing in blockchain, AI, and life sciences.
Some limited partners are now considering how to manage their cash flow and allocations, potentially leaving newer, less established venture capital firms on the back burner as funding continues to slide into territory not seen since the start of 2020.
Andrew Spellar, chief investment officer of the Fairfax County Employees Retirement System in Virginia, said he remains optimistic about the market, but would be more cautious about where to invest money. .
“If there are reups, we’re more likely to use current funds and less new funds,” Spellar said. “We’re going to want less exposure to risky assets and double down on areas where we feel safer.”
Spellar noted that performance reports from the funds they have invested in have been “flat-to-flat positive” since the first quarter, but he predicts reports due in June will tell a much different story. Spellar said future reports may show losses, which will impact how they invest in the near term.
The layoffs and plummeting stock prices have prompted many to start preparing for a major pullback in tech investment.
But, according to Spellar, the pension fund was able to protect itself from much of the downside by investing heavily in real assets such as commodities, so potential losses from the public market and private investments didn’t matter. hurt the fund so far.
Spellar said the fund had strong growth, particularly in its innovation theme or in funds that invested in artificial intelligence, life sciences, cybersecurity and blockchain.
While the pension fund still expects these areas to grow, it may not be investing more anytime soon.
“We’re pretty comprehensive in terms of allocations on this theme, so at this time we don’t expect any new allocations around it,” he said. “Last year we had good returns for blockchain and even life sciences were good.”
Fairfax County has been investing in technologies such as blockchain since 2018. It has committed $10 million to the Morgan Creek Blockchain Opportunities Fund. Spellar said it has since invested in funds managed by venture capital firms Blockchain Capital and Polychain. The county said its blockchain investments were primarily focused on blockchain technology companies, with no more than 15% going to tokens and cryptocurrencies.
As part of its commitment to blockchain and crypto, Fairfax County plans to seek approval from its board of directors to invest in funds using yield farming strategies. As reported by Bloomberg, the Fairfax County Employees Retirement System and the Fairfax County Police Officers Retirement System want to invest in two funds that could return at least 9%. Bloomberg said the two pension funds invested at least $50 million in Parataxis Capital Management; an investment company focused on digital tokens and cryptocurrencies.
Of course, Spellar said, it all depends on how the crypto markets perform. Crypto prices have plunged in recent days, and one of the hottest cryptocurrencies – Luna and stablecoin TerraUSD crashed – losing almost 90% of their value.