Valerie Red-Horse Mohl, deputy chief investment officer of responsible investing at the Bureau of Asset Management of the Office of the New York City Comptroller, is pushing for more investments in venture capital funds by the city’s $296 billion pension funds.
The reasoning stems, in part, from the need for more liquidity. When asked by New Private Markets how she viewed the liquidity situation in private markets, particularly for sustainable and impact investments, Red-Horse cited venture capital as an underutilised strategy and potential driver of liquidity for New York City’s pensions.
“We’re seeing some activity that is very exciting in the venture capital markets, obviously fuelled by AI. We’re seeing exits happen that make you raise your eyebrows,” Red-Horse said, referencing instances where venture capital investments have progressed to an initial public offering in as little as two years.
“I’m not suggesting that is the complete answer, but it’s something that I like to keep an eye on,” said Red-Horse, who will be a panellist at NPM’s Investor Summit in New York City in November.
Before she was appointed by New York City Comptroller Brad Lander in February, Red-Horse directed various venture capital programmes at different investment firms and she has taught a course called Entrepreneurship for Social Impact and Racial Equity at Stanford University since 2019. As a result, she is leading efforts to educate directors at New York City’s five retirement systems about venture capital.
“People in New York are just not as familiar with the whole venture capital space,” said Red-Horse, who lived in Silicon Valley for a decade before joining BAM.
New York City’s retirement systems “have almost nothing” in venture capital, Red-Horse said, and getting them on board is a work in progress. Each of the five systems has its own board, meaning BAM must work with a host of decision-makers and consultants. But in the past week, Red-Horse said she brought in a fund of funds manager to present a case for venture capital investments.
“Their returns absolutely justify any sort of fees that you associate with a fund of funds,” she said. “They’re based in Silicon Valley. They understand the market, and we wouldn’t have to be in charge of manager selection. I think it should be left to people that really understand what to look for in the tech business.”
The responses to her campaign range from opposition, often based on perceived higher risk, to those who are all for it, maybe because they have a background in technology and are more familiar with the sector.
“I have found that we have to rely on the protocols that are in place,” she said, adding that the fund of funds manager who she invited was already on the 10th fund and had logged returns in the first or second quartile for many years.
“You’re not going with an emerging manager on something like venture capital. You’re looking at long-tenured Silicon Valley-based entities that really know what they’re doing,” she said.
“This is a nascent idea of mine. They brought me in to be innovative and so I’m going to pursue this, but in a very patient way,” she added.
In comparison, one of BAM’s peers among public pension funds, the California Public Employees’ Retirement System (CalPERS), had $2.2 billion in its venture capital portfolio and $21.9 billion in its growth equity portfolio at the end of last year, according to a review of its private equity programme in June.
Engaging with emerging managers
Red-Horse is also in charge of the diverse and emerging manager and brokerage programmes of the New York City Employees’ Retirement System (NYCERS), as well as the economically targeted investments programme and the broader ESG programme.
NYCERS aims to allocate 20 percent of assets to diverse managers and 10 percent to emerging managers by 2029, up from current levels of around 14 percent and 5 percent, respectively, Red-Horse said. It also wants to allot 3 percent of assets to firms owned by disabled veterans.
“These goals are aspirational,” she said, adding that some public pension funds allocate up to 30 percent of assets to diverse or emerging managers.
“We have some work to do. We’re not doing it because they’re diverse. We’re doing it because we see alpha,” she said.
“This is New York, and New York believes very strongly in diversity. It just makes sense that that is who we represent.”
One issue that remains, however, is size. Diverse and emerging managers are often small. A diverse manager could be on its fourth fund and have an outstanding track record, but if it manages less than $1 billion in assets, for example, the pensions struggle to allocate from their main private markets buckets.
These are a “a good fit” for the diverse and emerging manager programmes, she said: “If it’s too small, we have a pathway forward. If it’s too young, we have a pathway forward.”
For private markets firms, the comptroller’s office previously defined a diverse manager as 25 percent owned by women or minority groups, but it introduced new definitions in July, designating a majority-owned diverse manager as one that is at least 51 percent owned and operated by women or minorities.
The city’s retirement systems – NYCERS, the Teachers’ Retirement System, the Board of Education Retirement System, the New York City Police Pension Fund and the New York City Fire Pension Fund – had $296 billion in total net asset value at the end of July, including $26 billion in its private equity portfolio, $18.5 billion in private real estate and $4.32 billion in hedge funds.
Valerie Red-Horse Mohl will be a panellist at New Private Markets‘ Investor Summit in New York City on 4-5 November.
