Massachusetts Pension Fund Stands Out for Private Equity

Annualized Returns Were 15.4% Over the Last 10 Years

By Ryan Dezember

The Massachusetts Pension Reserves Investment Trust has the best performing private-equity investment portfolio in the land, according to a study by a private-equity industry advocacy group.

The Private Equity Growth Capital Council, based in Washington, D.C., studied the private-equity returns at 146 U.S. public pensions with at least $1 billion of invested assets, and released a ranking of the top ten. Annualized returns over five years and 10 were blended, with 10-year performance given twice the weight of the shorter-term results. The group declined to make the entire study, including the poorest-performing portfolios, available.

The Massachusetts fund came in first place with a 15.4% annualized return over the last 10 years, and 9.1% over the last five. Following closely in the rankings are the Los Angeles County Employees Retirement Association, Teacher Retirement System of Texas and Houston Firefighters Relief and Retirement Fund.

The Massachusetts pension fund had about $6.1 billion of its $54.4 billion in total investments in private-equity funds at the end of August. Since the advocacy group’s study, which considered returns through reporting periods that ended at various points in the second half of 2012, the Massachusetts fund’s private-equity investments have appreciated further, returning an annualized 17.7% over the last ten years, according to the fund’s records.

Private-equity firms are having a banner year. The buoyant stock market has lifted the value of companies they own as well as giving them an outlet to cash out of longstanding investments via stock sales. At the same time, red-hot debt markets have enabled private-equity owned companies with rising profits to take on new debt to fund payouts to their owners in record volumes. Those dividends flow back to private-equity fund investors, such as pensions, plumping their returns.

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