North America-based pension funds have continued to be an integral investor in the private equity asset class. Public sector pension funds represent 10% of all investors in private equity in terms of number, while private sector pension funds account for 14% - second only to foundations which make up 15% of al private equity investors. Preqin’s Investor Intelligence currently tracks 528 public pension funds and 760 private sector pension funds, of which 62% and 58% are based in the North America, respectively. Public pensions lead private sector pension funds in terms of average current allocation to the asset class, with 6.1% of total assets allocated to the asset class compared to 5.4%. However, when looking at those based in North America, both currently allocate 7.3% of total assets to private equity.
The sixth-ranked public pension fund in terms of current allocation to private equity ($15bn), New York State Common Retirement Fund (NYSCRF), has recently made new commitments to the asset class. It was announced this month that the pension fund re-upped with CVC Capital Partners and committed €250mn to CVC European Equity Partners VI, the fourth buyout vehicle in the series. Last year, NYSCRF committed $100mn to a distressed debt vehicle raised by GSO Capital Partners, GSO Capital Solutions Fund II. The industry has seen a general growth in investor appetite for distressed private equity which encompasses distressed debt, turnaround and special situation vehicles. According to Preqin’s H2 2013 Investor Outlook: Alternative Assets report, 16% of LPs view distressed private equity favourably, compared to the 13% of LPs that shared this view in H2 2012.
Of the private sector pension funds tracked by Preqin, there are many actively looking to make new fund commitments in the next 12 months. For example, University of Missouri Retirement, Disability and Death Benefit Plan expects to commit to a number of private equity funds, as it plans to meets its long-term target allocation of 10% of total assets by December 2015.
Private equity funds allow North America-based pension funds to diversify their assets from stocks and bonds. Going forward, both private sector pension funds and to a larger extent, public pension funds will continue to be active investors in private equity funds as the current financial climate continues to improve.