Public Pension Funds Investing in Private Equity Funds in the Next 12 Months - July 2014

by Lisa Parker

  • 08 Jul 2014
  • PE

Preqin currently tracks 5,338 investors in the private equity space. A large number of these investors (816) have indicated that they are looking to make new commitments to the asset class over the next 12 months. Fund of funds managers issued 28% of fund searches and mandates, public pension funds account for 15%, followed by insurance companies (9%), private sector pension funds (8%) and endowment plans (7%). Public pension funds therefore make up the largest proportion of institutional investors looking to make new private equity fund commitments over the coming year. 

North America-based public pension funds have issued the majority (62%) of the fund searches and mandates, followed by Europe-based public pension plans which issued 33% of the searches. The remaining 5% were issued by public pension fund LPs in Asia and South America. 

Public pension funds looking to make new investments over the next 12 months have an average allocation to private equity of 6.6% of total assets, but an average target allocation of 7.8% - revealing that this LP community as a whole is undershooting its target and is actively looking to increase their current level of commitments to the asset class. These public pension plans are looking to commit an average of $332mn across five new funds over the next 12 months. 

Almost two-thirds of public pension funds (64%) that are looking to invest in the year ahead will be targeting buyout vehicles, making them the most sought after of all private equity fund types. Preqin’s Investor Intelligence indicates that distressed private equity is also common among public pension plans, as 35% of those seeking to invest in private equity in the next 12 months are looking to add distressed private equity funds to their portfolio, encompassing distressed debt, special situation or turnaround vehicles. Furthermore, 30% have stated a preference for growth funds, and 27% for funds of funds. 

North America is the most common investment destination with 68% of public pension funds looking to add North America-focused funds to their portfolio, followed by Europe-focused funds (56%). Thirty-two percent will target Asia Pacific-focused private equity funds and 26% will invest in emerging markets. 

An example of a North-America based public pension fund that has recently committed to a North America-focused buyout vehicle is Virginia Retirement System. The $6.2bn public pension fund invested $150mn in Sycamore Partners II, which recently held a final close at $2.5bn. Alaska Retirement Management Board is a US-based public pension fund which is active in the asset class; it plans to commit $450mn to new private equity funds throughout the rest of 2014.

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