Some institutional LPs have started pulling back from VC, but most won’t

This year will likely be a sore spot for venture returns. While we haven’t seen drastic down rounds or sensationalized startup shutdowns yet, if the market continues on its downward trend, it feels all but inevitable.

While some firms can shrug off a bad vintage or two — thank you, management fees — poor performance hits their investors (limited partners, or LPs) the hardest. But despite the fairly certain future performance hit, institutional LPs like to play the long investing game. Because of that, they aren’t generally a very reactive bunch.

So I was surprised to see that the Fairfax County Employees’ Retirement System told Insider in May it was putting a pause on new venture relationships — while interestingly still investing in crypto — while the New York State Teachers’ Retirement System voted in August to cut their venture allocation by five percentage points for next year.

The pair of news items made me curious if this particular downturn was actually enough to sway LPs from their historic investing norms, but according to LP consultants, these two venture backers are most likely outliers. The consultants said even if things get much worse before they get better, LPs have more reasons than not to stay the course.