ICYMI: U.S. Senator, Ohio Pension CIO, & Economist Highlight Strong Private Equity Returns for Public Pensions

AIC Sponsors Event with The Hill Examining Private Equity’s Role in Strengthening Retirements

WASHINGTON, D.C. – Yesterday, the American Investment Council (AIC) sponsored an event hosted by The Hill examining how private equity continues to generate critical returns for public pension funds nationwide. The Hill Contributing Editor Steve Clemons interviewed Senate Banking Committee Ranking Member Sen. Pat Toomey (R-PA), Jason Fichtner, Chief Economist at the Bipartisan Policy Center, and Farouki Majeed, Chief Investment Officer (CIO) of the Ohio School Employees Retirement System. The event also included a sponsored perspective panel, where Pam Hendrickson, AIC Board Chair and Drew Maloney, President & CEO of AIC, discussed the AIC’s new Public Pension Study  finding that private equity continues to generate the highest returns of any asset class for the 34 million Americans who depend on a public pension for their retirement. 

Private Equity Delivers for Ohio 

More than 243,000 Ohio janitors, bus drivers, cafeteria workers, and other educational workers depend on returns generated by the Ohio School Employees Retirement System (Ohio SERS) to secure their well-earned retirements. Fortunately, Ohio SERS’ private equity investments delivered an astounding 17.7 percent return over a ten-year period. According to Ohio SERS CIO Farouki Majeed, “We are very much focused on returns, that is how we look at opportunities. Our private equity return as of the end of June 2021 was 17.6% over ten years. As of December, it’s 19.2% over ten years. The 10-year total fund return is 10.5%. So, we were able to get to 10.5% primarily because of very solid private equity returns of 19.2%.” Farouki also went on to say that Ohio SERS would be increasing their private equity allocation to generate additional high returns.

“The numbers from private equity have been very good” 

Senate Banking Committee Ranking Member Pat Toomey (R-PA) discussed how private equity continues to generate the highest returns of any asset class because private equity employs active managers who closely partner with businesses, “The numbers from private equity have been very, very good … It’s the fact that most of the most successful private equity firms add value to their portfolio companies. That’s their real reason for being successful. They have developed an expertise, very often it’s industry specific, where they make an investment and then they immediately begin to add value in the management of the operations of that company and through the networks that they bring to the table. So, there is a good reason why they have been able to have very high rates of return and performance numbers.”

More than 30 Million American Public Servants Depend on Private Equity Returns 

AIC President & CEO Drew Maloney discussed the results of the AIC’s recently released Public Pension Report showing that private equity delivered the strongest returns for public pensions portfolios. In 2021, private equity investments delivered a median annualized return of 15 percent over a 10-year period for public pension funds across America– a greater return than any other asset class. “We all know that pension funds are struggling to meet their obligations around the country, and we have 30 million Americans that are dependent on these retirement benefits. You’ve got firefighters and policemen, you have teachers … janitors, cafeteria workers, bus drivers. All these people are dependent on these returns in order to have a comfortable retirement and for us being able to deliver year after year one of the best investment performances for private equity inside of a pension fund is really an amazing achievement.”

Private Equity Supports Small Businesses

Private equity generates outsized returns by partnering with businesses that need expertise or capital to expand, grow, or hire new workers. 74 percent of private equity investments in 2021 went to support small businesses. AIC Board Chair Pam Hendrickson discussed how her private equity firm, The Riverside Company, partnered with Ohio-based N2Y, which provides software and other digital tools to schools that teach special needs children, “We invested in Ohio based company called N2Y. It was created by a teacher who noticed that in the public schools there was no curriculum for children who are on the learning-disabled spectrum, particularly those on the autism spectrum. So she created a company that did that.”

Private Equity is an Important Part of a Diversified Portfolio

The AIC’s Public Pension Report found that 89 percent of public pension funds in the U.S. have exposure to private equity. According to Bipartisan Policy Center Chief Economist Jason Fichtner, private equity returns make up an important part of a diversified portfolio for public pension funds, “[Public pension funds] need to have a risk adjusted portfolio that includes things that have long-term average higher returns. That is the only way you will have the cash to pay out benefits ten, twenty years down the line.”

Proposed SEC Rules will Hurt Pension Beneficiaries and Small Businesses 

Despite generating record returns for public pension funds and other investors, AIC Chair of the Board Pam Hendrickson also warned that recently issued rules from U.S. Securities and Exchange Commission would make it harder for private equity to support public servants and partner with small businesses, “A small company like OnScent is already struggling with their supply chain and cost issues. So how then is the company also going to add another layer of reporting … I don’t know how that is going to help all the teachers and policemen who are relying on us for our returns.” In fact, a recent survey found that a majority of limited partners (LPs) are satisfied with the current levels of regulation governing the private equity industry.

To read the full public pension report from the AIC, click here.
To watch the full event hosted by The Hill, click here.