Thu, May 28, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Private Equity Strategies

Data Snapshot: Private Equity and Pension Funds Go Steady

Monday, April 29, 2013

By: Bailey McCann, Private Equity Strategies

In our last issue, we discussed the potential impact of institutional divestment around hot button issues like guns and climate change. In that piece, data showed that even if institutions like public pension funds are seeing returns from controversial investments, stigma around those investments and/or pending legislation, may in of itself prompt divestment even without a public outcry.

Now, the Private Equity Growth Capital Council (PEGCC), has released a new whitepaper detailing just how intertwined public pensions are with private equity and what that will mean for the industry. The report highlights the significant amount of capital pension funds commit to private equity and the financial gains they receive from the outperformance of these investments.

Despite losses from other investment strategies during the Great Recession, one bright spot for pensions is the superior performance of private equity funds, which helped buoy overall pension returns. The PEGCC research found that the median public pension portfolio received 8.8% in returns from private equity, compared to 3.7% in public equity and 5.7% in total portfolio returns, annually over the past ten years.

Overall, 60% of the funding available in pension funds comes from returns on investment Ė setting up a high-pressure situation for the directors of those funds when investments fail to return. The long-term structure of private equity investments can provide a buffer from episodic market corrections, but lengthy recessions like 2008 can depress returns.

Private equity too relies on investments from pension funds. Data in the paper shows that investments from public pensions account for 43% of all invested capital in private equity. According to the PEGCC, pensions are "essential to the private equity industry, just as private equityís superior returns are vital to the financial health of pension funds."

"Without private equity returns, public pension plans across the country would incur greater unfunded liability, possibly resulting in higher pension contributions by employees and a spike in taxes paid by local residents," Bailey concluded.

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies


Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - Hedge funds buy swathes of foreclosed subprimes, force up rents, float rent-bonds, Hedge funds buy Actavis, Valeant. ETFs join the party, The most loved biotechs of big hedge funds, Stocks to buy ... according to hedge funds, Atlantic City bond offering attracts hedge funds as buyers, Okumus Fund Management discloses huge new Ascent Capital Group stake[more]

    Hedge funds buy swathes of foreclosed subprimes, force up rents, float rent-bonds From Boingboing.com: When a giant hedge fund is bidding on all the foreclosed houses in a poor neighborhood, living humans don't stand a chance -- but that's OK, because rapacious investors make great landl

  2. Institutions - Institutional investors turn to real estate, planes, Assets at Bostonís five biggest family nonprofits rise to $3.5bn[more]

    Institutional investors turn to real estate, planes From Joins.com: The National Pension Service and domestic emerging market specialists who did not know where to invest in a low interest rate environment are turning to other investments like the blue-chip real estate market abroad.

  3. Regulatory - Hedge funds face tax as Iceland poised to end capital controls, Comment: Why alternatives need more transparency, not enforcement[more]

    Hedge funds face tax as Iceland poised to end capital controls From Bloomberg.com: Hedge funds and other investors who bought claims against Icelandís failed banks face a tax that targets the lendersí estates as the government prepares to unveil its plan for exiting capital controls in t

  4. Opalesque Exclusive: BMO launches multi-strat '40 act fund[more]

    Bailey McCann, Opalesque New York: As we reach new market highs, investors are looking for a way to diversify and protect their portfolios from a potential market correction. Liquid alternatives are rapidly gaining ground as a critical tool for investors to use to mitigate downside risk. The BMO

  5. All hedge fund strategies rebounded last week as market conditions normalize[more]

    Komfie Manalo, Opalesque Asia: After a difficult start this month, all hedge fund strategies ended last week in positive territory, as the Lyxor Hedge Fund Index gained 0.9% (-0.2% MTD, 3.3% YTD). According to Lyxor AMís latest Weekly Briefing, in t

banner