New PEGCC Report Ranks Top 10 Pension Funds by Private Equity Returns and Allocations

Judge: “Time and again private equity has proven that it’s the single best asset class for public pensions, by delivering superior returns over long time horizons.”

Washington, D.C., October 23, 2013 – The Private Equity Growth Capital Council released a new study today revealing which public pension funds invested the most in private equity, as well as those that produced the highest rate of return on their private equity portfolios.

According to the analysis, private equity returns to large public pension funds continue to outperform all other asset classes over 10-year time horizons. The report examines 146 U.S. public pension funds with assets greater than $1 billion, analyzes the asset allocation of these funds, and compares the performance of their private equity investments to other asset classes.

The PEGCC’s analysis is broken down into four main categories. The highlights from each category are below. You can view the infographic, interactive map and full report by clicking on the links.

–Top 10 Pensions by PE Returns (%):  The report found that the Massachusetts Pension Reserves Investment Trust (PRIT) maintained the highest private equity performance, followed by the Los Angeles County Employees Retirement Association and the Teacher Retirement System of Texas. The rankings are based on 10-year and 5-year annualized returns by pensions’ private equity investments.

–Top 10 Pensions by PE Allocation ($): CalPERS has invested the most capital ($34.2 billion) in private equity compared to all other pension funds in the country. CalSTRS and the Washington State Department of Retirement Systems allocated the second and third greatest amounts ($22.6 billion and $16.1 billion, respectively) to private equity funds.

–Pension Asset Allocation: Based on the pensions studied, the report found that private equity investment makes up 10.3 percent of total public pension fund investment, compared to 9.6 percent from last year’s PEGCC report. Private equity is the third most invested asset class behind public equity and fixed income.

–Pension Returns by Asset Class:  Private equity delivered a 10 percent annualized return to the median public pension over the last 10 years, more than any other asset class. By comparison, the median public pension received a 6.5 percent annualized return on its total fund during the same period.

“Time and again private equity has proven that it’s the single best asset class for public pensions, by delivering superior returns over long time horizons,” said Steve Judge, president and CEO of the PEGCC. “Private equity continues to strengthen the retirement security of the millions of American police officers, firefighters, teachers and administrators who rely on hard-earned pension benefits. There is no doubt that private equity returns are essential to improving the pension funding equation,” Judge concluded.

The report is compiled using information from publicly available 2012 annual financial reports and quarterly reports from the 146 largest public pension funds. Private equity returns are reported net of management fees and carried interest. Performance calculations for other asset classes include returns that are both gross and net of fees on marketable securities.

“This research shows that private equity is the only asset class delivering annualized returns greater than the 8 percent target return set by most public pensions for their total plan,” said PEGCC Vice President of Research Bronwyn Bailey. “Pension investment in private equity helps to offset underperforming asset classes and alleviates some financial stress on pensions, their members and the constituents who support them,” said Bailey.