Why did public pensions invest in venture capital firms in the first place? Years of ever-escalating pension benefits plus years of severe underfunding those same pensions means that they needed unrealistic growth rates to even come close to meeting their targets.
Take California for example. Not only did they keep increasing pensions promises while underfunding them, they used a variety of accounting tricks to cover it up. On top of that, they assumed unrealistic returns (7.5% or higher in many cases).
How could they get away with? California has essentially become a one-party state where public employee unions are the most powerful interest group. So the process is:
1. Public employee unions use mandatory union dues to contribute to Democratic candidates.
2. Once elected, Democrats vote for ever escalating pension benefits.
3. Democrats appoint pension board officials who ignore underfunded pensions. And the CEO of CalPERS, California's largest pension fund, was just indicted for fraud. "The indictment charges that the falsified documents allowed Villalobos to reap $14 million in fees for serving as a middleman between CalPERS and a prominent investment firm handling $3 billion in CalPERS' money."
Combine this with ever-higher taxes, and a faltering economy, and you have a recipe for the governing class looting the treasury at the expense of the middle class (and future generations that will have to deal with the consequences of bankruptcy and crushing debt loads). Several California cities have already declared bankruptcy, and newer, more transparent accounting rules will probably force more into bankruptcy.
VC funds are probably the least of their worries.