A panel of entrepreneurs and fund managers says the $357 billion California Public Employees’ Retirement System (CalPERS) needs to revisit its investment portfolio to ensure it’s making the right investments in an age of technology disruption.
“In Chinese, the symbol for crisis and opportunity is the same, and I think that symbolizes your challenge right now,” Vivek Ranadivé, venture capital fund founder and owner of the Sacramento Kings basketball team, told the CalPERS board and investment staff at a retreat meeting earlier this month. “Just about every industry is going to get disrupted, so what you might think of as safe might actually be quite risky.”
He said in terms of investments, CalPERS staff might need to find opportunities, “outside of your comfort zone.”
Ranadivé, the founder of Bow Capital, which runs a venture capital fund with the University of California Office of the Chief Investment Officer, talked about new industries that CalPERS could invest in, like gene editing.
“Literally, you’re going to be able to cut and paste gene sequences, eliminate genetic disorders, create new forms of life. You could say ‘I want a peanut that does not cause allergies,’ and that’s going to be a trillion-dollar industry,” he said.
Another panelist, Li Lu, founder of chairman of Himalaya Capital, which focuses on long-term investments in Asia and the United States, said investment opportunities exist specifically in China with growing use of mobile technology. He cited as examples the 750 million Chinese who now own smart phones and a growing mobile payments industry which last year saw $9 trillion in transactions.
No formal decisions were made by CalPERS board at the retreat meeting in Petaluma, near California wine country.
“The panel was simply informational for the board,” CalPERS spokeswoman Megan White told CIO.
What was clear from the seminar was there are no easy answers for CalPERS or other institutional investors as they navigate investing in a new era.
But the pension plan has a funding level of just 68% and CalPERS board members have said making the right investments is critical for the survival of the largest retirement system in the US.
Investments in start-ups were discussed at the meeting, but Lu told the CalPERS board about the difficulty of hitting it big by investing in tech start-ups.
He said even for a large, sophisticated investor like CalPERS, “it is hard to have the expertise,” he said. “For every success, there’s got to be 100 failures.”
“But you should really set expectations realistically in the beginning…” he said. “Because while you intend to go to the moon, you could really, basically go all the way down to hell, and many people did that.”
Ranadivé emphasized the technology disruption in coming years will be unprecedented.
“We’re now entering a time where the world’s largest bookseller has no books, the world’s largest taxi company has no cars, and the world’s largest hotel owns no real estate, so it’s really the age of information and service and data,” he said.
Lu said the rising middle class and technological changes in China are positive for investors.
“You have a billion people determined to get rich, to move faster, you have a government that is very supportive and pro-business investing wisely on the basic infrastructure needed,” he said.
As technology creates an opportunity for new companies, long-term institutional investors like CalPERS come into play, said a third panelist, Steven Poizner, chairman and CEO of the Alliance for Southern California Innovation, which is attempting to build a second Silcom Valley tech hub in California.
“What I have found is that great companies are built by wonderful teams of diverse entrepreneurs who team up with long-term investors,” he said, “because none of this is possible without the capital coming at a predictable time and having investors that have the understanding and patience that things don’t go in a straight line in startups.”