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Washington looks to be first public pension LP to back Sequoia’s megafund

  • $350 mln commitment Washington’s first with Sequoia
  • Sequoia has avoided most public LPs for more than a decade
  • Unclear whether Washington will disclose fund performance in future investment reports

Washington State Investment Board appears to be the first major public pension to back Sequoia Capital’s new $5 billion growth fund. The $128.8 billion retirement system committed up to $350 million to the vehicle at its meeting last week.

This marks Washington’s first commitment to a Sequoia fund. The firm eschewed most public pensions or institutions since the mid-2000s after court cases involving two of its limited partners — University of California and University of Michigan endowments — prompted the release of financial information the firm had deemed proprietary.

“Unfortunately, times have changed and the quiet curtain of privacy that protected our confidential information has been torn. … We also have the right to protect our other clients, our portfolio companies and our sales from the various damages that can result from the dissemination of information that we consider highly confidential,” Sequoia Partner Mike Moritz wrote in a letter to the CIO of the University of Michigan endowment at the time.

Both institutions went on to invest with Sequoia in subsequent funds, though the amount of information released about the performance of those investments remained limited.

Other blue-chip venture firms, including Kleiner Perkins Caufield & Byers and Andreessen Horowitz, have also avoided public institutions as a way to keep their funds’ financial performance private.

In the case of University of California, Sequoia was one of several firms that stopped providing return information to Cambridge Associates, which the endowment uses to prepare its annual report on the internal rates of return generated by its stakes in private-market funds.

Similarly, Washington State Investment Board releases quarterly reports detailing the performance of each of the private funds in its portfolio.

Despite Sequoia’s refusal to release fund performance figures in the past, Washington expects to include internal rate of return and multiple data from its commitment to the fund in future reports.

“In working with Sequoia, our investment team does not expect to deviate from our standard reporting of private equity fund performance data in the IRR report. We expect inclusion,” Washington’s Director of Institutional Relations and Public Affairs Chris Phillips told Buyouts in an email.

Sequoia did not respond to requests for comment.

Sequoia’s decision to market its new fund to public pensions is due at least partly to its size. At $5 billion, with an $8 billion hard cap, Sequoia Capital Global Growth Fund III will invest primarily in U.S. and China-based technology companies.

The firm will likely use the fund to maintain its stakes in existing portfolio companies. Massive checks from SoftBank’s $98 billion investment fund have led to larger and larger funding rounds for successful late-stage tech companies, effectively diluting the stakes of early-stage investors.

“If they buy 20 percent of a seed company for a couple million dollars and that turns into Uber and they want to maintain that 20 percent ownership at every round, they want to have deep pockets,” an LP told Buyouts earlier this year.

SoftBank became Uber’s largest shareholder earlier this year when it and an investor group provided $9.3 billion to the ride-sharing company’s latest funding round.

Sequoia was founded in 1972. Its portfolio has included some of the largest and most well-known technology companies, including AppleGooglePayPal and YouTube.