An excerpt from our “2nd Annual PE/VC Conference: Perspectives from Allocators and Managers” conference.
Keynote Study Findings: 2nd Annual PE/VC Conference
Chris Hohn the founder and manager of TCI Fund Management was the star speaker at this year's London Value Investor Conference, which took place on May 19th. The investor has earned himself a reputation for being one of the world's most successful hedge fund managers over the past few decades. TCI, which stands for The Read More
So the first finding is most public pension funds have some amount invested in private equity of our 163 public pensions velly 11 or 7 percent of our sample. I did not have any dollars invested in private equity. So again these are dollars invested. It's not the target allocation which often can be very different things. So 93 percent of our pensions invest in private equity. Most had an investment ranged between 5 percent and just under 10 percent portfolio. This 93 percent is quite high and it's grown from about 84 percent from our report in 2014. So will it ever get to 100. Probably not. I think there's still a few states that have not mandated or allow their pensions to invest in private equity. But we've seen a growth in the the the number of pensions and the percentage of pensions or sample I've seen in private equity. The second finding is as a wholeU.S. public pensions invest about 9 percent of their portfolio in private equity for this report. The total was eight point six percent. And this is taking all of our pensions adding up their investments by asset class and then looking at the percentage composition about half of the total is investing public equity. Probably no surprise there. And just under 24 percent of fixed income and generally we've been doing this report since 2012. Generally the private equity investments percentage is around 9 to 10 percent. So this has been fairly normal since we started in 2012.
I'd also say that the percentage horse the fixed income the public equity is also in out year 1 2 percentage point range that you see here. So it seems very stable for for public pensions and their allocation distribution. The third finding is that private equity outperforms Rasik Lutz's serve. You're back to your risk premium due to the should that should be no surprise but we'd like to verify it with actual data from LPs and the bar charts represent the median public pension return based on tenure and realized returns. So in other words if you rank the public pensions for private equity that eight point six percent is the median pension return for the pensions Richard reporting tenure analyzers results public equity. The media to six point one fixed income five point three so private equity outperforms public public equity by about two and a half percentage points. Toll fund returns for these pensions. The median is five point three analyzer the last 10 years. So one thing to note is that the only asset class sorry. One thing to note if you're reviewing public pensions you'll probably know that there's actuarial target return. The average right now is seven point five percent. This return is the amount that they use to value their future liabilities. It's also the amount that they're estimating their investments will return over the long term horizon. So based on this data the only asset class outperforming that seven point five actuarial target return is private equity. So when the question that I get often is why do you LPs continue to invest in this asset class. For me that's the reason why it's really helping the overall pension portfolio return.
Intro to the American Investment Council: 2nd Annual PE/VC Conference
Recognizing Public Pension Fund Mass PRIT: 2nd Annual PE/VC Conference
Keynote Study Methodology: 2nd Annual PE/VC Conference
Why Pension Investors are Important to Private Equity: 2nd Annual PE/VC Conference