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The Make-Up of Private Sector Pension Funds Investing In Private Equity – November 2012

by Tom Carr

  • 20 Nov 2012
  • PE

Private sector pension funds continue to be a vital source of capital for fund managers on the road, providing the second largest amount of capital invested in the private equity asset class of all investor types, after public pension funds. Private pension funds represent 15% of total capital invested in private equity (excluding fund of funds managers and asset managers), with $218bn invested in the asset class as of December 2011.

Preqin’s Investor Intelligence database currently tracks 576 private sector pension funds, with aggregate assets under management of over $2.9tn, which either 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 52% of the total number of private sector pension funds, with Europe representing 36% and the remaining 12% located in Asia and Rest of World.

On average, private pension funds are under allocated to the asset class, with an aggregate target allocation to private equity of 6.3% of total assets, whereas on average they have a current allocation of 5.8%, indicating spare capital available for future commitments to the asset class. When analyzing the importance of manager track records, it is interesting to note that 28% of private sector pension funds are open to investing in first-time funds, with a further 14% considering doing so. Twelve percent will consider vehicles managed by a spin-off team.

Preqin data shows that private pension funds represent 8% of the capital committed to the average private equity fund that closed between 2010 and July 2012. This is the joint third largest investor type alongside insurance companies, behind only public pension funds and fund of funds managers.

As a result of increasing regulation across many regions on 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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