Mon, Apr 24, 2017
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 – 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 equity’s 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. Opalesque Exclusive: Carden Capital bets on volatility[more]

    Bailey McCann, Opalesque New York for New Managers: Machine driven strategies are having a bit of a moment in the hedge fund world right now. Systematic funds have outperformed other strategies at a time when all ey

  2. Sprott AM to sell Canadian diversified fund business to management-led group[more]

    Komfie Manalo, Opalesque Asia: Toronto-based asset management company Sprott Asset Management LP (SAM) has entered into an agreement to sell its Canadian diversified fund business to a management-led group. Under the deal, the new group will have

  3. Investing - These hedge funds (and Madeleine Albright) are betting on a debt crisis, Hedge funds are upping their bets on the death of the traditional retailer, $20bn hedge fund recaps Corizon[more]

    These hedge funds (and Madeleine Albright) are betting on a debt crisis From Yahoo.com: There could be a big debt crisis brewing in places like China, India, Latin America and Africa -- and a growing number of investors are amassing war chests to cash in on the distress. Albright Capital

  4. Universities looking to defend endowments from Republican tax plan[more]

    From PIOnline.com: Some of the richest U.S. colleges are pushing back against scrutiny by Congress over the tax-exempt status of university endowments. Lobbying disclosure forms show almost two dozen schools such as Princeton University, University of Notre Dame and Cornell University are including

  5. Activist News - GAM touts 'tangible results' of turnaround as activist fight hots up, Bill Ackman not done with Herbalife, says his fight could get legs in May, Activist hedge fund CIAM says Euro Disney's buyout offer not fair for minority investors[more]

    GAM touts 'tangible results' of turnaround as activist fight hots up From FNLondon.com: GAM, the Swiss asset manager at the center of an attempted boardroom putsch by activist hedge fund RBR Capital, said its first-quarter results amounted to "tangible" proof that its management's plan f