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.