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Virginia’s pension system boosts PE allocation target to 14%

VRS has been steadily increasing allocation towards PE, had an 8.8% allocation in 2011 and is now up to 15.6%.

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After strong performance of its portfolio for fiscal year 2021, one of the largest pension systems in the country, Virginia Retirement System, is hiking its allocation for FY22 to 14 percent from 13 percent.

As of June 30, 2021, the PE program returned 54.1 percent, under its 57.8 percent benchmark. In addition, the total fund returned 27.5 percent, beating its 25.3 percent benchmark, an outperformance of 220 basis points.

According to the VRS, the private markets (real assets and private equity) allocations were roughly 16 percent in June 2011, and 28 percent for FY2022.

Increasing is PE allocation is not new for VRS, which has been steadily increasing over the past decade.

Back on June 30, 2011, the program had a market value of about $4.8 billion, with the total fund market value coming in at $54.463 billion, which equates to 8.8 percent of the total fund.

More recently, as of June 30, 2021, private equity’s market value came in around $15.8 billion, with the total fund at $101.788 billion, which equates to 15.6 percent of the total fund.

“Historically, over the long term private equity has been one of VRS’ highest returning asset classes,” according to O’Kelly McWilliams III, chairman of the VRS. “Since private equity is less exposed to daily price movements, as compared to the stock market, it offers a diversification benefit to the fund.”

“Also, given that private equity is generally an asset class that offers meaningful differentiation of returns among funds, VRS’ investment staff’s knowledge and expertise add value through skillful manager selection,” said McWilliams.

VRS is the 18th largest public or private pension fund in the U.S. and the 41st largest in the world, serving more than 742,000 active and inactive members, retirees and beneficiaries.

The VRS evolved from two previous retirement systems. In 1908, the earliest public retirement system in Virginia, the Retired Teachers’ Fund, provided benefits for public school teachers only. That system was replaced on July 1, 1942 with the VRS.