Venture capital funds need to “break the tyranny” of their typical 10-year cycle as it is choking the funding for innovative sectors whose commercial value takes longer to be realised, said Harvard Business School professor Josh Lerner. 

Speaking at the Top1000funds.com Fiduciary Investors Symposium at Harvard University, Lerner – who is also director at not-for-profit Private Capital Research Institute – said the fact that VC portfolios are increasingly concentrated in a narrow band of sectors is a worrying sign. 

The number of US startups receiving a first round of funding from VC is highest in the software and business and consumer product sectors. Since 2015, more than 3500 – and sometimes more than 4000 – companies have received VC funding each year, while that number is 1500 or less for startups in biopharmaceutical, medical devices, telecommunications and other hardware sectors, according to Lerner’s research.  

“If you think about the venture [capital] game, a lot of it is putting a little money in, figuring out whether something works or not, and putting a lot more chips on the table,” he said. 

“The problem is, for much of this tough tech area, that game just doesn’t really work as well.”  

For example, Lerner said, investors might have to sink billions of dollars to build a fabrication plant before knowing if it can produce viable chips or if there is market demand.  

“Unlike code, which has this beauty of if you get it to run once, it’ll run an infinite number of times, the real-world is a bit of an ugly place,” he said.  

Lerner acknowledged that reasons why these so-called deep tech ventures, such as healthcare and clean tech, are difficult to invest in are multifaceted. Venture capital funds’ 10-year set-up and the need to return investor capital within that time frame is only one of them. 

They also tend to have lower relative returns compared to highly commercialised areas like IT due to capital intensity and the time needed to de-risk the underlying technologies.  

In addition, the broader deep tech industry structures present challenges – energy, materials and the majority of healthcare markets are often complex, ridden with regulations and with low margins. The government is also an important and sometimes primary customer. 

While venture capital and corporates have never historically been big funders of long-term innovation, Lerner said what’s added to the challenge in recent times is the pullback of government money which has been the backbone for the development of hard-to-monetise but societally important technologies.   

Between February and April 8 – less than 40 days – the Trump administration terminated 700 National Institutes of Health grants worth $1.8 billion, according to analysis published in medical journal JAMA. 

This is where asset owners have a critical role to play as providers of patient capital and encouraging investments in line with that philosophy, Lerner said. 

“I think in some ways it’s easy to beat up on the GPs and say, ‘look at these stupid, greedy people’, but in many cases, many of the pathologies that you see on the GP side have their reflections on the LP side,” he said. These include personnel changes leading to a re-evaluation of capital commitment, Lerner said. 

“In general, I think that there really is a mismatch between many features of the venture system and many of the really large technological challenges that are out there,” he said. 

“It’s hard to get from one equilibrium to another one, but certainly this is a challenge that we can think about.” 

Total portfolio approach (TPA) is not a method, it’s a mindset, according to University of Toronto finance Professor Redouane Elkamhi.  

Elkamhi, who is also a senior advisor to the chief investment officer and total portfolio group of Canadian pension giant HOOPP, said if he were to summarise TPA in one sentence, it would be: “How to be prepared for different market conditions.” 

A mindset of being prepared goes beyond simple scenario planning, which Elkamhi argues probably has the opposite effect, because “when there is a new scenario that comes up, you turn out to be unprepared at all”, he told the Fiduciary Investors Symposium at Harvard University. 

“[TPA] means what team you have, what tools you have, what capability you have, and what mindset you have as a CIO or a CEO, so that you can face uncertainties,” he said. 

TPA has been the focus of much investment industry literature, but it has no universally agreed upon definition. Canadian pension funds are well-known practitioners of the approach, but its adoption is also becoming more prevalent among US, European, Asian and Australia asset owners. 

The concept also has various pseudonyms. At NZ Super and Australia’s Future Fund, for example, it is known as the “[joined-up] whole-of-portfolio approach”; at CalSTRS, it is “total fund management”; at OPTrust, it is “member-driven investing strategy”; and at CPP Investments, it is “One Fund”. 

But Elkamhi said there are four common characteristics of TPA across iterations: a philosophy of fund-wide decision making; an alignment of actions with total fund objectives; the breakdown of asset class silos; and the optimisation of capital and risk allocation within and across asset classes.  

“Ask everybody, everybody will tell you we’re doing TPA these days. But look at what is the governance, what is the benchmarks, it’s going to come clearer to you guys,” he said.  

TPA’s rise in popularity is no coincidence, as Elkamhi said asset owners are fundamentally re-evaluating their assumptions about investing under which strategic asset allocation (SAA) has thrived. The first two are the interwoven factors of evolving market dynamics and changing risk premia.  

“Risk premia is changing – the idea of how much compensation you are for each risk,” he said. 

“Traditionally, you had to be compensated this way, maybe the compensation is now too high. 

“If risk premia is changing across asset classes going forward, then how am I going to build a portfolio that is based on history, to come up with some weight that are strategic and keep them forever?” 

There are also structural limitations facing funds, including liquidity constraints and liability management.  

But the final factor, which Elkamhi believes is the most influential, is investors realising there are flaws in benchmark-driven thinking.  

“I think for the last 10 years, we became scapegoat of benchmarks,” he said. For example, while asset owners realise the need for more geographical diversification compared to, say, the country composition in a global equities benchmark, their capacity to do so might be constrained due to risk budgets.  

“The reason we talked about TPA so much is because there are structural… illiquidity and flaws in benchmark, and there are now new views about asset returns,” he said. 

For any asset owners thinking of pivoting to TPA, Elkamhi recommends some deep thinking about fund structure and investment process design first.  

“Check the legacy structure. Because generally, what people do if they have an SAA [and want to be adaptive], they start to patch in it with different things,” he said.  

These organisations may want to start by establishing a good risk sandbox, re-examining their liability hedging and stakeholder alignment among a slew of other considerations.  

“TPA will change [your organisation]…it requires risk change, requires incentive change, requires you understand risk premia correctly, and requires a different mindset of being prepared,” Elkamhi said. 

“There are many smart people that will tell you SAA is good…but I believe that smart is common, courage is rare.” 

Massachusetts treasurer Deborah Goldberg said the current US political climate is “not business as usual”, adding that the state’s key strengths – including its higher education institutions and progressive social policies – are being targeted by the federal administration.  

“All that makes Massachusetts great are direct targets of the federal administration,” Goldberg said during an opening speech at the Top1000funds.com Fiduciary Investors Symposium at Harvard University’s Medical School.  

“This is not business as usual, and to be candid, this level of uncertainty and volatility is not good for anyone, both within this country and throughout the world.” 

The state was credited as the first the country to have a constitution that abolished slavery, in 1780; and as the first to legalise same-sex marriage, in 2004. Aside from Harvard University, Massachusetts also houses 113 other public and private higher education institutions, including the Massachusetts Institute of Technology (MIT). 

Just days after Goldberg’s comments, the Trump administration upped the ante on its war against Harvard, barring the Ivy League school from accepting international students on the grounds that it is permitting antisemitism and “pro-terrorist” behaviours on campus.  

Harvard has since secured a court order temporarily blocking the Trump administration’s order, but without a longer standing arrangement, close to 7000 existing international students at the university may face visa cancellation or mandatory transfer to another institution.  

Goldberg said Massachusetts’ investment in education is a key to not only maintaining its status as an innovation hub for industries like healthcare and biotechnology, but also as an attractive destination for domestic and international talents.  

“Other recent challenges, not surprisingly, are the detention and arrests of visa holders, legal residents and citizens,” Goldberg said. 

“These aren’t just assaults on the civil rights of people living here but threaten our workforce capacity. From hospitals, colleges and universities to restaurants and local businesses, our economy depends on the breadth of immigrants who come to work, study and thrive in our state.” 

Goldberg is chair of the $110 billion public employees’ pension fund, MassPRIM, and its stewardship and sustainability committee. Despite recent efforts to label sustainable investing “with politically charged buzzwords”, she said MassPRIM’s commitment to stewardship is “simply common-sense investing”. 

“[It’s] what every successful, savvy businessperson has always done,” she said.  

“We believe in all of the challenges that the committee and our breadth of investments address. We look for well-run companies.  

“We know quarter-to-quarter is not what we want to be invested in, and we understand the elements that help a company or our investments grow.” 

But as a state treasurer, Goldberg said her primary goal is to maintain Massachusetts’ AA+ credit rating – the same level as the US federal government after its recent downgrading from a triple-A credit score by multiple ratings agencies.  

She also signalled that the research innovations and start-ups in the state will need more support from investors as opposed to federal funding, “at least for now”.  

“I am actually hopeful that philanthropic dollars will help to support our colleges and universities, which are generators [for the state’s economy],” she said. 

“We have a combination of all types of things that are involved in health care delivery and all that are involved in pharma… High tech, bio tech, you name it.  

“Invest in it. Invest in it here. It’ll be well-used, and you will be very successful.”

If aging were a disease like any other that could be treated and “cured”, the implications for society would be profound, and the Top1000funds.com Fiduciary Investors Symposium at Harvard University has heard that time is not far off. 

Harvard Medical School Department of Genetics Professor David Sinclair told the symposium that aging is a medical condition like any other, that it may be preventable or treatable, and that getting older may, in the not-too-distant future, become a matter of choice. 

Sinclair said understanding how genes are turned on and off is the key to understanding the aging process and therefore how to arrest or reverse it. 

Heart attack, stroke and kidney failure and other diseases are “manifestations of this universal process I’m talking about today, that we now know occurs in every cell and in every organism on the planet, even yeast cells, that we call aging”, Sinclair said. 

Ageing affects the body’s ability to handle those diseases, but if aging is reversed they go away. 

“We know it works in what we call, affectionately, non-human primates, or monkeys,” Sinclair said.  

“Monkeys are very similar to us, of course, and so I’m on record saying I’d be really surprised if it doesn’t work in us as well.” 

Sinclair said it has long been believed that in the process of replication over a lifetime, DNA becomes damaged or mutates, and that’s what causes aging in cells. 

“There’s still a few people that hang on to this idea, but there’s a lot of evidence that that’s not true,” Sinclair said.  

“The other bit of evidence that, if you think about it, is really damning to the DNA-damage hypothesis, is I could take a cell from each of you and clone you, and I’d make babies out of your old cells. 

“It says that [in] our old cells, it’s not the DNA that’s a problem, it’s something else that has a reset button. I believe we found out what that reset button is. And fortunately, we won’t have to go through a cloning step to be rejuvenated. We can do it while we’re still alive. 

“It’s not the DNA that’s the destiny, it’s something else.” 

Sinclair said that in essence there exists a kind of “backup” of an organism’s original DNA, called the epigenome, which can be used as a reference to “reset” the organism’s DNA. The trick, Sinclair said, is not to push back the aging process too far and cause the DNA to create stem cells, because that is fatal to the organism. 

“What we had to figure out, which really was the hard part, was how do you reset aging by 75 per cent, 80 per cent, but not 100 per cent, and safely?” he said. 

“What we’ve found is a way to not just keep embryos young, but to safely keep adult tissues young.  

“We’ve done it… in living monkey tissue, and humans are next.” 

Change the pattern 

Sinclair said his lab’s goal is to “change the DNA methylation pattern on the DNA”. 

“What we’ve shown in my lab and … in the monkeys is that we can reset the pattern of those chemical changes on the DNA,” he said. 

“And if you’re astute, you might be saying, how is that possible? How does the cell know which of these chemicals is missing to put it back on and vice versa? And my answer is: that’s the Nobel Prize. If you want to win one, go figure that out. You’d be racing me for that answer. 

“We don’t fully know yet how it works, but we have some clues, and I have students on that, but we think that there’s physical changes, some tags on the DNA that gets laid down when we’re babies that tells the cell how to go back and put those chemicals back where they belong.” 

Sinclair said that if his research holds up and he’s correct about the hypotheses so far put forward, it could be as big an advance in medical science as vaccination or antibiotics. 

“It’s really big, and it will really change society,” he said, 

“It will change the way we think about our lives and what diseases we can treat that we currently have nothing for. 

Sinclair said the pace of research and discovery has been accelerated exponentially by the application of artificial intelligence, allowing his researchers to do “AI screens of trillions of molecules in a matter of two months that would normally take probably 20 years to go through physically”. 

“Out of those trillions of molecules, we have hits that are reversing aging in similar ways to the gene therapy, single molecules, not cocktails that we’ve been using.  

“Those single molecules, if they work, you could imagine, and we will try them, to take a pill to cure blindness or to cure Alzheimer’s. That’s how fast it’s going, that in two months, we can do 20 years of research now by simulating chemistry in the computer and docking trillions of molecules against proteins.” 

Sinclair said the work that’s been possible in the past few months was literally impossible only a few years ago and would have taken “more than a million years to do this, probably,” without AI. 

“What we were looking for was a single molecule that could activate one enzyme and inhibit three other different ones,” he said. 

“Normally, you’re after one target, which is extremely difficult. We said, let’s do four with one molecule, and we got it to work.  

“But you can only do that in the in the virtual world. It wouldn’t be possible physically. So AI is huge. If you ask my students, how often do you use AI, for them, it’s like breathing.” 

Asset owners have turned more optimistic about the role of active managers as market volatility and dispersion create fresh stock-picking opportunities.  

The industry has been under stress for several years due to lukewarm performance which is commonly attributed to the rise and rise of large cap technology stocks and passive investing. However, investors at the Top1000funds.com Fiduciary Investors Symposium concluded that the root cause of that stress might be more complicated.  

“The trouble that active managers have faced – I’m not sure passive is to blame,” said Trevor Graham, head of equities and deputy chief investment officer at TIFF, which offers outsourced CIO services to endowment and not-for-profit clients. 

Active managers tend to be underweight the Magnificent 7, which was hurting their performance, in part because they feel the need to justify their fees by finding lesser-known companies of good value, Graham said. 

“There’s a little bit of a behavioural bias here – I think there’s a reluctance on the part of a lot of active managers to walk into a meeting with a client say, ‘my biggest overweight is Apple’.” 

But the number of eyeballs on these companies also means there is not much room for alpha.  

“Anything in the Mag 7, it doesn’t matter what stock it is, there’s probably a hundred sell side analysts following that stock. There’s probably another several hundred buy side analysts looking at it too,” he said.  

“I think a lot of them [active managers] rightly say, what’s the chance I’m going to have a divergent view here that’s right, and it’s going to lead to excess return?” 

As an asset owner, Graham said TIFF does not have a view about whether the Magnificent 7 will continue to dominate market performance, and it tries to not become excessively overweight or underweight. It requests individual security level positions from managers and keeps the seven stocks within a tight range of the benchmark.  

“[We’d rather] take the tracking error in other places where I think the odds of success are more in our favour,” he said.  

The Magnificent 7 stocks have recovered after a tough first quarter in 2025 but are still underperforming the S&P 500, and Graham said the majority of its active manager roster are ahead of their benchmarks in the year so far.  

“I really think for active to do better, one of the things that that needs to happen – and it’s a simple idea – is just that these roughly seven stocks don’t continue to outperform.” 

Traders vs owners

But Aziz Hamzaogullari, founder and chief investment officer of growth equity strategy at Loomis Sayles, has a different view about the way active managers approach the Magnificent 7.  

“The issue isn’t that there are a lot of people following these names. The issue is these managers cannot make up their mind if they want to own it or not,” he said.  

Looking at the companies Loomis Sayles owns out of the Magnificent 7 and their past ownership, Hamzaogullari estimated that only 0.5 to 2 per cent of active managers held onto their holdings over the past two decades.  

“That means that 98 to 99 per cent of managers have been trading these names, and your return profile is very, very different if you owned it continuously… versus if you were trying to trade. 

“They just trade it because of short term pressure; of this pressure of outperforming every day – which is not going to happen, and every year – which is not going to happen,” he said, adding that most pension managers would consider replacing a fund manager if they have underperformed in the three years trailing. 

Another cause of the underperformance is because active managers have simply become less active. The Active Share – a measurement of differences between a portfolio’s holdings and those of its benchmark – has been declining every decade in the past 50 years, Hamzaogullari said. 

“In large cap space, if you look at the best of the best managers, historically in the last 20 years, their information ratio is around 0.3 per cent. 

“So just basic math tells you, the lower your Active Share for the same amount of information ratio, you’re going to get less returns.” 

Unlike TIFF, Makena Capital – which is also an OCIO provider – has been underweight the Magnificent 7 as a collective in the past five years. But its managing director and head of public equity Anne Marie Fleurbaaij emphasised the seven stocks are not a “monolith”, and that the fund is overweight in some of the names.  

When selecting active managers, the fund is looking for five things: clear process, fundamental research, long-term investment horizon, concentration and balance, and shareholder engagement.  

“There’s… 160 or so names beat the S&P 500 over the last five years to [this] Monday and 90 stocks beat the Mag 7,” she said. 

“If you look at year to date, it’s 350 or so names that have beat the Mag 7 and 250 names – so more than half – that has beat the S&P 500. 

“This tells me that there are opportunities and you don’t have to just buy the Mag 7 to beat the market.”