Why Pensions Keep Betting on Big VC Funds (Despite Abysmal Returns)
I love hearing spicy conspiracy theories from emerging managers on why pensions continue to choose large VC firms despite their abysmal returns:
1) Pension officers secure cush jobs at five times their salary once they leave their institutional roles.
2) These pensions are run by the VC GP's brother-in-law, and they're crushing it through insider connections.
3) Donors are directing allocations to their own firms, turning a $1M donation into a $100M allocation—tis better to give than receive but why not both!
From my observations and conversations with pension managers, the reality is:
1) Allocators might miss out on the 10x fund, but few are willing to risk their job to pursue it.
2) Large funds partner with VC-friendly banks that secure sweetheart M&A financing or favorable exit terms, smoothing the path to a de-risked 3x return over 15 years.
3) The best deals often go to the biggest funds, as founders prefer a short roadshow to quickly get back to building, leading to strong, low-effort high-fliers to mask the ocean of flameouts.
4) Big funds hire polished professionals who speak the language of institutional LPs. They either come from those offices, bringing a metric ton of goodwill, or understand allocator thinking intimately, including the exact right positioning and words to say.
5) Being a Big Boy Fund GP offers co-investment opportunities in Series B+ companies that can absorb $10M without disrupting their cap table, and while glacial fund performance is a tradeoff for high-potential direct deals—often just before going public and movable to a pension’s public equity portfolio amid a sea of high-fives—it’s worth it.
As a venture partner for several funds, I suggest GPs crush a small Fund I, secure a Fund-of-Funds and a few family offices for Fund II, and position themselves for success with Fund III by engaging with institutions that have had time to track your progress over 3+ quarters and review your reports.
Not enough Fund II+ GPs offer venture partner opportunities to recently retired pension or endowment CIOs, who are worth their weight in gold for the polish and perspective.
If you're in the family office space, DM me for details on our free Family Office Fellowship.