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Private Sector Pension Funds Investing in Private Equity – November 2013

by Katie Edwards

  • 26 Nov 2013
  • PE

Over the course of 2013, private sector pension funds have continued to make significant commitments to the private equity asset class. Given the continued volatility of the global economy, the private equity asset class is ever more appealing for private sector pension funds in order to maintain a diversified investment portfolio, as well as to achieve returns above the public markets.   

Preqin’s Investor Intelligence currently tracks 758 private sector pension funds, that either currently invest in private equity or are considering making a maiden commitment to the asset class. Geographically, the largest proportion of investors are North America-based, accounting for 58% of the total number of private sector pension funds. Western Europe represents 28% and the remaining 14% are located in the Nordic region, Asia and other economies outside of North America and Europe.

Generally, private sector pension funds are under-allocated to the asset class, with a mean target allocation to private equity of 6.3% of total assets, compared to an average current allocation of 5.7%. This suggests that there is capital available for future commitments to the asset class. One private sector pension fund that has recently implemented a three year plan in order to increase its current allocation to private equity is Debswana Pension Fund. The Botswana-based pension fund will look to increase its current allocation to private equity by 2.5% each year in order to achieve its target allocation of 7.5% of total assets.

When analyzing the importance of manager track records, it is interesting to note that 41% of private sector pension funds are open to investing in first-time funds, including vehicles managed by a spin-off team.  An example of a private sector pension fund that is willing to invest in first-time funds is BP Pension Fund. The private sector pension fund is looking to invest in 10 to 15 new private equity funds over the coming year. Other examples of private sector pension funds that are looking to invest in new private equity vehicles in the next twelve months are Intel Corporation Pension Plans, Duke Faculty and Staff Retirement Plan and United Nations Joint Staff Pension Fund.

As a result of increasing regulation across many regions for a number of historically large investors in private equity, such as banks and insurance companies, private sector pension funds look likely to be an increasingly important source of capital for fund managers on the road in the future.

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