Europe-Based Pension Funds’ Private Equity Investment Activity – October 2015

by James Higuita

  • 12 Oct 2015
  • PE

Private equity remains an attractive alternative asset class, largely delivering strong returns to investors, as evidenced by the Preqin Investor Outlook: Alternative Assets, H2 2015, where 87% of investors interviewed by Preqin stated that their private equity commitments have either met or exceeded expectations over the past year. As with all the alternative asset classes, private equity attracts a variety of institutional investor types, including public pension funds and private sector pension funds. Here, we examine the make-up of active pension funds based in Europe, and look at the regions and fund types these prominent investors are currently targeting.

Preqin’s Investor Intelligence online service currently tracks 5,852 investors actively investing in the private equity asset class, of which 22% are public or private sector pension funds. Europe-based pension funds account for a significant 30% of all pension funds that invest in private equity globally. Within this group, Preqin currently tracks 232 Europe-based private sector pension funds compared with 162 public pension funds. Although there are significantly less public pension funds, these investors are typically larger in terms of aggregate assets under management (AUM). Europe-based public pension funds have total AUM of €1.7tn, ahead of private sector pension funds on €1.6tn. In terms of average allocation to the private equity asset class as a percentage of total assets, the figures are similar, with an allocation of 4.2% by public pension funds and 4.3% by private sector pension funds.

Unsurprisingly, fund of funds vehicles are the preferred fund type of pension funds. Such funds offer investors exposure to a variety of different fund types, further diversifying risk within their investment portfolios. A significant 78% of Europe-based public pension funds have a preference for fund of funds vehicles, compared with 51% of private sector pension funds. The only fund types that are not preferred by a larger proportion of public pension funds than private sector pension funds are mezzanine and buyout funds, as illustrated in the chart above. Additionally, notable differences are seen across more niche fund types such as timber, where 6% of public pension funds have a preference for such vehicles; Europe-based private sector pension funds, however, are yet to consider this fund type.

Europe-based public pension funds are less dispersed and more heavily weighted in the traditional investment regions compared to their private counterparts. Ninety-one percent of Europe-based public pension funds have a preference for investing in Europe, compared with 74% of private sector pension funds. A greater proportion (68%) of Europe-based public pension funds also seek opportunities in North America, compared with just 47% of Europe-based private sector pension funds.

Europe-based pension funds will continue to be a vital and large pool of capital for fund managers looking to raise funds in the near future. The largest Europe-based public pension fund, both by capital committed and AUM, is Netherlands-based ABP, which is looking to commit between €3bn and €4bn across 20 to 30 new private equity funds over the next 12 months. Similarly, the largest Europe-based private sector pension fund, UK-based Universities Superannuation Scheme, will commit £500mn in up to five new private equity funds in the next year.

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