Fund Performance: Impressive Winners of CalPERS’ Emerging Ventures Portfolio

The California Public Employees’ Retirement System has complained mightily about its venture capital portfolio, but its California Emerging Ventures portfolio isn’t looking all that bad.

The portfolio has 37 venture funds with vintages of 2005 to 2009, and 29 of them, or 78%, have positive IRRs, according to the pension manager’s most recent public performance report.

A dozen or so of the funds are standouts. Avalon Ventures VIII has a net IRR of 64.1%, and Foundry Venture Capital 2007 has a 43.3% IRR. Flagship Ventures Fund 2007 comes in third with a net IRR of 29.7%, according to the report, which updates fund performance through September 2012.

The portfolio also has nicely performing funds from Battery Ventures, Ceyuan Ventures, OpenView Venture Partners and OrbiMed Advisors. The median IRR for all its funds is 4.8%, which is above the Cambridge Associates median for 2005 and 2006 funds, but below the median for 2007, 2008 and 2009 funds.

The secret for the performance isn’t obvious. The portfolio, which is managed by Grove Street Advisors, favors smaller, early-stage funds. About half of its holdings fit into this category, according to data from Thomson Reuters (publisher of VCJ). Another 40% are mid-sized funds, some of which have a balanced or later-stage approach to investing.

Only two funds are above $800 million in size: Technology Crossover Ventures VI and Highland Capital Partners VII.

The portfolio has a significant chunk of its funds from the 2006 and 2007 vintage years, an improving period for venture. About 60% come from these two years.

Yet all is not golden. Only three of the funds have returned more cash than called. And a handful of the funds are struggling.

Celtic House Venture Partners Fund III has an IRR of -23.2%; Aberdare II Annex Fund’s IRR is -15.5%; and the Highland Consumer Fund I comes in at -10.2%.

In the accompanying, we list the venture funds from the portfolio with their commitments, distributions and IRRs.