The Politics of Disclosure

"The result of requiring public pension funds to reveal venture returns is that the best funds will simply not accept public pension funds as investors," argues David Hornik on Venture Blog. The freeze effect is real, especially since the rule inherently disadvantages public funds.

The other part of the story, of course, is to remember (i) the fiduciary responsibility that pension funds and other large institutional investors have towards their constituent investors and (ii) that investors, no matter how small they are, have a right to know in what they are invested. Tim Oren’s point that many individual investors lack the sophistication to understand or stomach the volatility inherent in VC (or other private equity) investments is valid, but that then also raises the question as to whether such investments are appropriate for them.

What does it mean if an institutional investor cannot explain an investment to his constituents? Shouldn’t an institutional investor be able to do so? I agree with Hornik and Oren that looking at the returns of funds of too recent vintage can be misleading, but the same cannot be said of funds that are at stages that should be considered of more mature vintage. If funds of more mature vintage are performing poorly, shouldn’t it be valid for investors to question the appropriateness of the fund’s investment strategy?

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