SFERS, the San Francisco Employees’ Retirement System, recently released data that sheds light on the performance of venture capital funds in the midst of a market downturn. According to the data, the venture portfolio recorded a -.9% internal rate of return in 2023 through the third quarter. This is a significant drop from the 48.8% IRR recorded in 2021 and the -19.9% return in 2022.
It is important to note that these figures encompass all the venture funds in SFERS’s portfolio, regardless of their lifecycle stage. This means that the numbers include funds that are still deploying capital and have not yet started returning capital. Therefore, the overall fund performance is down, and the mature funds in SFERS’s portfolio are not generating enough returns to offset the losses from newer fund commitments.
While these numbers do not provide insights into individual fund performance or the specific performance of funds nearing maturity, they do indicate a decline in overall fund performance. To put this in perspective, in a more typical year like 2018, SFERS recorded a 22.3% IRR. This suggests that despite having a significant number of funds still in their investment period, the mature funds in the portfolio performed well.
However, there is a glimmer of hope in SFERS’s performance data. The -0.9% IRR in 2023, though negative, is an improvement compared to the -19.9% in 2022. This suggests that the industry may have already hit its lowest point and is on its way to recovery.
SFERS’s data is particularly significant because it is an active venture limited partner (LP) with a long history of investing in the asset class. The pension fund has built a sizable $3.6 billion venture portfolio diversified across emerging and established managers, stages, and vintage years.
Despite the recent downturn, SFERS has not been deterred from continuing to invest in venture capital. In fact, the pension fund made 15 commitments to venture funds in 2023 and has already made two commitments in the current year, including a $75 million commitment to IVP XVIII and a $40 million commitment to Volition Capital Fund V.
While it may not be a stellar year for venture fund performance, there are signs that the worst effects of the downturn may be behind us. SFERS’s data suggests that the industry is gradually returning to normalcy, and with continued investments from LPs like SFERS, there is optimism for future growth and recovery in the venture capital market.
