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Private equity continues to lead pensions' announced private markets commitments; private debt, real estate tumble

Thursday, December 03, 2020
Opalesque Industry Update - Public pensions in the United States, United Kingdom and Canada tracked by eVestment continue to favor private equity investments over other private markets investment options, according to the just-released eVestment Private Markets Monitor covering October 2020. For October, these pensions reported a total of $3.62 billion in commitments to private equity funds, with an average commitment size of $53 million. October 2020's reported commitments were $1.26 billion more than was reported in October 2019 ($2.36 billion), but down significantly from the 110 commitments worth a total of $12.72 billion these pensions reported in September 2020.

After a year of relative stability, pensions' commitments to private debt investments tumbled in October. Reported commitments by pension plans to private debt funds in October was the lowest amount recorded in the last 12 months, and a significant decline both month-on-month and year-on-year. Just $392 million in commitments were reported to private debt funds, compared to $3.1 billion the previous month and $2.1 billion in October 2019. The average reported commitment size to private debt funds in October was $44 million, less than half of the $94 million average commitment reported in September 2020.

Commitments to real estate private markets funds have been on something of a roller coaster ride this year. Following a rebound in reported commitments in September (45 commitments totaling $4 billion), reported commitments to real estate funds saw a major decline in October, with just 12 public plans reporting $900 million in commitments. While there is an element of cyclicality in reported commitments, with quarter-end months trending higher than average, this was still a significant drop compared to October 2019, when reported commitments were more than double October 2020, totaling $1.99 billion.

Whereas private equity & private debt funds have experienced increased commitment activity from this investor group compared to 2019, the story is not the same for real estate. As of Q3 2020, real estate fund commitments were trailing 2019 figures by nearly 25%, highlighting the impact of the pandemic on the asset class. As noted in a separate eVestment Private Markets Group study on real estate investments, this segment of the private markets investment business could be in for some long-term challenges. That study, "Exploring the Impact of COVID-19 on Private Markets Real Estate: Trends in Industrial, Office, Multifamily, and Retail" is available here.

Reported commitments to real assets investment funds have seen ups and downs similar to those to real estate investments over much of 2020, but have seen remarkable stability in the past four months. Monthly commitments from July through October remained in a narrow band of between $1 billion to about $1.4 billion in each of those four months. October 2020 saw pensions tracked by eVestment report nine commitments worth a total of $1.04 billion. This is up a good bit from October 2019, when these pensions reported $685 million of commitments to real asset investment funds.

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