ICYMI: Media Outlets Highlight AIC Study on Private Equity’s Superior Returns for Public Pensions
Maloney: “PE investments tend mostly to benefit smaller companies, which boost the economy and need the capital.”
This week, the American Investment Council released the latest edition of our Public Pension Study, which found that private equity remains the top-performing asset class for public pension funds and their more than 34 million beneficiaries nationwide. Over the past decade, private equity delivered 15.2 percent returns. This performance outpaced other investment classes, including public stocks, real estate, and fixed income.
See below for press coverage of the study.
U.S. public pension funds earn 10-year median return of 15.2% from private equityPensions & Investments
By Arleen Jacobius | July 22, 2024
Private equity produced a median annualized return of 15.2% over 10 years for U.S. public pension funds, according to a report by the American Investment Council, a private equity manager trade group.
The AIC report examines the private equity investments of 200 U.S. public pension funds for the years December 2021 to December 2023, with most dates as of June 30, 2023.
The U.S. public pension fund earning the highest private equity return was the $6.4 billion Vermont State Retirement Systems, with an annualized 20.5% over 10 years, the AIC report said.
The Illinois State Board of Investment, which oversees the investment management of about $24 billion in combined assets, had the next best private equity return with an annualized 18.83% over 10 years, followed by $8.6 billion New York City Board of Education Retirement System with an annualized 18.81% private equity return over 10 years.
Private Equity Continues as Top Performer for Pension Plans, Study Says
Chief Investment Officer
By Larry Light | July 22, 2024
Private equity continues to generate the most growth for allocators, according to a study by the American Investment Council, a trade association for private assets, even though their performance in the last couple of years has lagged amid languishing dealmaking and higher interest rates.
The study shows not just that “private equity delivers the best returns, but that it brings diversification” as well, comments Drew Maloney, the AIC’s CEO and president, in an interview. Plus, “it gives us access to growth companies.”
For the 10-year period ending in 2023, pension funds found that PE delivered the best performance, an annual 15.2%. Second place was public stocks, at 10.2%, then real estate at 9.6% and fixed income at 2.1%. Total fund return from PE averaged 7.9%. “Even the bottom 25th percentile of private equity returns exceeds the media public equity return,” the report said.
The study reported that 88% of public funds had PE exposure, representing 14% of the portfolio in dollar terms. PE is the third biggest allocation among public funds. The largest allocation was to public equity at 42%, with 21% to fixed income.
The favorable findings for PE are echoed elsewhere: A study by the Chartered Alternative Investment Analyst Association found that public pension funds’ PE investments, often to M&A and initial public offerings, outpaced other investment types for the long term on average and continued to do that in 2023. Ernst & Young projects that mergers and acquisitions deals will climb by 24% this year, and law firm White & Caseexpects much the same for IPOs, which it said advanced 24% in 2024’s first two months. Expected lower rates are a factor in the optimism.
The California Public Employees’ Retirement System, for instance, is among the many fans of PE. The fund announced in March that it would boost its target allocation to private equity and other private assets to 40% from 33% and that PE is its top returning investment. CalPERS, as of January 31, held $68.7 billion in private equity assets, 14.2% of its portfolio. It is the largest PE investor among public funds, followed by the California State Teachers’ Retirement System and the Washington State Investment Board (see chart).
The best returning pension fund PE portfolio, over 10 years, was that of the Vermont Pension Investment Commission, at 20.5%, followed by the Illinois State Board of Investment and the New York City Board of Education Retirement System, both at 18.8% (the Illinois system is slightly ahead by 0.02 percentage points).
PE overall enjoys a good reputation in the investing world. As AIC’s Maloney points out, PE investments tend mostly to benefit smaller companies, which “boost the economy and need the capital.”
