Private Equity Delivers the Strongest Returns for Public Servants

New AIC report found private equity to be the best returning asset class for public pensions, delivering median annualized returns of 15% over a 10-year period

WASHINGTON, DC – Today, the American Investment Council released its 2022 public pension study 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 that partner with private equity – a greater return than any other asset class.

The top 10 public pension funds by private equity returns as of June 30, 2021, net of fees:

  1. Illinois State Board of Investment, which had a 10-year annualized return of 19.8 percent
  2. West Virginia Investment Management Board, which had a 10-year annualized return of 19.7 percent
  3. Massachusetts Pension Reserves Investment Trust, which had a 10-year annualized return of 18.9 percent
  4. Public School & Education Employee Retirement System of Missouri, which had a 10-year annualized return of 18.4 percent
  5. Iowa Public Employees’ Retirement System, which had a 10-year annualized return of 18.3 percent
  6. Nashville & Davidson County Metropolitan Government Employee Benefit Trust Fund, which had a 10-year annualized return of 18.1 percent
  7. Ohio School Employees Retirement System, which had a 10-year annualized return of 17.7 percent
  8. San Francisco Employees’ Retirement System, which had a 10-year annualized return of 17.5 percent
  9. Baltimore Fire & Police Retirement System, which had a 10-year annualized return of 17.4 percent
  10. Delaware Public Employees Retirement System, which had a 10-year annualized return of 17 percent

Public pensions represent a promise to take care of the public servants who take care of us. In order to offer retirement security for dedicated public servants, these funds must consistently generate strong investment returns. Almost all of them turn to private equity for help,” said AIC President & CEO Drew Maloney. “This year’s pensions report highlights why more than 30 million Americans trust private equity to deliver strong and secure retirements.”

The study analyzed 176 U.S public pension funds which represent nearly 34 million public sector workers and retirees. 89 percent of public pensions in the sample had some exposure to private equity. On a dollar weighted basis, private equity makes up 11 percent of public pension portfolios.

Private equity investments outperformed other asset classes based on 10-year median annualized returns, including fixed income (4.2 percent), public equities (11.8 percent), and real estate (9.5 percent). The total 10-year median annualized portfolio return was 9 percent.

Private equity delivered a median annualized return of 12.3 percent in 2020 and 13.7 percent in 2019 for public pensions over a 10-year period.

Below are direct quotes from public pension fund chief investment officers and executive directors about why they chose to invest in private equity:

“Ohio SERS is pleased to be ranked among the top ten in Private Equity returns for the ten years ending June 30, 2021 with a return of 17.6%. Our Private Equity portfolio has consistently generated the highest return in the SERS portfolio over rolling 10 year periods for many years and has contributed to the long term sustainability of the pension plan. The strategy pursued by staff in target markets has been successful and has also resulted in lower fees.”

Farouki Majeed, Chief Investment Officer, Ohio School Employees Retirement System

“ISBI is proud to be recognized by the AIC for its top-tier performance in private equity. Our consistently strong performance is a result of the hard work of ISBI Staff, strategic partners, and our innovative investment model which seeks to thoughtfully control fees while achieving strong performance on behalf of our 167,000+ beneficiaries. We will strive to replicate this success in the future and continue to push for wider change on diversity and inclusion in the industry.”

Johara Farhadieh, Chief Investment Officer, Illinois State Board of Investment

“A long-term commitment and investment in the private equity asset class has enhanced our ability to deliver on our mission of providing retirement security to Missouri’s educators and education employees after a full career of service. Private equity, within the Missouri PSRS/PEERS investment portfolio, has produced net-of-fees returns significantly greater than the returns achievable in publicly traded stocks over all time periods.”

Craig Husting, Chief Investment Officer, Public School and Education Employee Retirement Systems of Missouri

“I’m proud that the American Investment Council has determined that MassPRIM is the #3 pension fund this year, including a finding that our private equity portfolio yielded an almost 4% better return than the median for private equity over a ten-year period. This recognition – top five for a 7th consecutive year – reflects the innovation, diligence, and strong relationships of our outstanding private equity team.”

Michael G. Trotsky, Chief Investment Officer, Massachusetts Pension Reserves Investment Management Board

Tomorrow, Wednesday, July 13 at 8:00 AM ET, the AIC will host an event with The Hill examining how public pension funds across America depend on private equity investments to generate returns and secure retirements for millions of American workers and public servants. Speakers include Senator Pat Toomey (R-PA), AIC Chair of the Board Pam Hendrickson, AIC President & CEO Drew Maloney, Ohio School Employees Retirement System CIO Farouki Majeed, and Bipartisan Policy Center Chief Economist Jason Fichtner. RSVP here to attend in person or remotely.

To learn more, read the full 2022 Public Pension Study.


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