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Originally Posted by someone123
They have to pick which companies to give money to or turn down. In Canada where we mostly have staid investors the answer is that the money goes into something reliable, like real estate or conventional resources. The most wildly successful startups tend to inhabit the other end of the spectrum and it's hard to tell which ones will be successful.
VCs typically do require board representation. Often this amounts to some kind of experienced person giving advice to management of a new company. So if you go from VC style investment to the pension fund you lose that. Elon Musk and Peter Thiel and so on are involved in this sort of thing.
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There's definitely a big difference between VC firms and standard asset managers. I suspect much of it is down to how much you can afford to lose, and when you're managing something as important as retirement savings for people who often have no plan B, there has to be an element of risk aversion there.
On the flip side, while that dynamic may limit the risk tolerance of some large scale investors, I've often heard the opposite argument with small ventures with regard to income inequality in the sense that if the average person has a stronger safety net and greater personal savings available rather than basic subsistence, they're more apt to take risks as small entrepreneurs since failure isn't as personally catastrophic. I'm sure there are plenty of people who would love to start their own ventures but for whom the lack of security makes that infeasible. Obviously there's a big difference in what you'll invest in if you can flippantly afford to lose a couple million compared to if losing $50k means your family is homeless.
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