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Public Pension Plans' Median Returns by Asset Class

by Gary Broughton

  • 03 Aug 2012
  • PE

Public pension plans are among the most important and active investors in private equity. A review of their public reports reveals important insights into the performance of their private equity portfolios in comparison to returns received from other common asset classes.

Preqin has reviewed the financial and quarterly reports for over 215 public pension plan investors and calculated median returns received from their private equity, listed equity, hedge funds, fixed income, and real estate portfolios in order to compare these returns to their overall investment portfolio returns as of December 2011.

The majority of the asset classes, except for hedge funds and listed equity, post one-year median returns in the black, ranging from -7.2% to 12.3%. Over a three-year period, the highest return achieved was by listed equity, with 14.1%, and the lowest was by real estate, with -4.0%. Five-year returns show the majority of the asset classes posting positive returns. Listed equity and real estate are the exceptions, reporting returns at -0.9% and -1.0% respectively. Ten-year returns, which are more relevant for the private equity industry as the typical lifespan of a private equity fund is 12 years, show that private equity funds currently report a return of 9.8%. The returns for the other asset classes are all in the black and lie between 4.4% and 6.5%. Private equity generally outperforms the other asset classes except over the three-year period when all of the other asset classes post higher median returns than private equity.

It is important to note that compared to the other asset classes, private equity returns often lag by a quarter. The private equity returns are calculated by using the current quarter draw downs as outflows and any distributions as inflows, but the net asset values used are from the previous quarter.

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