Public pension fund PE investments jump, but still lag others

  • Public pension fund allocations averaged 5.6 percent in 2012
  • Pension fund allocations trail family offices, others
  • Survey marks first joint effort by Adveq, Coller Institute

Increased allocations to private equity between 2005 and 2012 meant an extra $350 billion from public pension funds and $240 billion from private pension funds was funneled into private equity.

Public pension funds’ allocations to private equity increased to 5.64 percent from 4.5 percent, on average, while allocations from private pension funds increased to 5.33 percent from 4.99 percent, on average. 

By contrast, allocations of family offices/endowments stand at 10 percent, while sovereign wealth funds allocate 18 percent of their investments to private equity.

“Pension funds have traditionally been big supporters of private equity investing, but they are still lagging behind other sophisticated investor groups,” Florin Vasvari, associate professor of accounting, London Business School, said in a prepared statement. “Pension funds are well equipped to change this and further increase their allocations to the asset class, as it is a good match for their long time horizon and predictable liabilities.”

Adveq CEO and Managing Director Sven Lidén said private equity investments for pension funds include investing in companies directly, co-investing alongside expert fund managers, as well as committing capital to single-manager funds and funds of funds.

Speaking to Adveq’s fund-of-funds business, Liden said the vehicles offer smaller pensions “a practical way of identifying and investing in the top performing fund managers.” For larger players, funds-of-funds ”provide a way of accessing small funds and or getting exposure to niche strategies/geographies,” he said in a prepared statement.

The study marks the first empirical, academic analysis of pension funds’ private equity allocations based upon their annual report data.

“While (pension fund) allocations to the asset class have grown significantly, they are still lagging behind other sophisticated investors,” the study found.