Fund performance: The case for venture over growth equity

Growth-equity returns are typically expected to outpace those of venture capital, but that isn’t the case at the Hawaii Employees’ Retirement System.

Venture performance over the past decade remains several steps ahead of that of growth equity.

The Hawaiian pension manager has a growth-equity portfolio of 19 funds with vintages of 2004 and 2014. It also holds 34 venture funds from the same vintage years.

Strip out a handful of generally small secondary purchases and the median growth-equity fund had an IRR of 6.24 percent as of December 2014, according to a recent portfolio report. Strip out the secondary purchases from the venture portfolio and the median IRR is 15.15 percent.

That’s not to say there haven’t been growth-equity winners. JMI Management’s Equity Fund V from 2005 had an impressive IRR of 39.54 percent as of December, according to the report. TA Associates’ TA XI from 2010 also is off to a good start with a 19.2 percent IRR as of December.

However eight of the funds in the portfolio had IRRs under 10 percent, including two with negative numbers. That’s more than half the portfolio, not including secondary purchases and funds too young to have an IRR.

Only 37 percent of the venture portfolio did, according to VCJ’s previous examination of the venture portfolio ”Mid-sized funds bring solid results to Hawaiian portfolio.”

The accompanying table shows the entire growth-equity portfolio with commitments, distributions and IRRs.