US Public Pension Funds exhibit an increased appetite for private equity funds.

by Madeleine Stretton

  • 08 Feb 2012
  • PE

Public pension funds have historically been among the most active of all investor types with regards to the private equity market, and many are heading into 2012 looking to increase their exposure further. Public pension funds such as Kansas Public Employees’ Retirement System (KPERS), believes there has been strong improvements in the visibility and overall growth of the global private equity market, conversely re-aligning buyer and seller expectations and making private equity funds a more attractive investment opportunity as a whole. KPERS is currently actively seeking private equity fund commitments across a broad spectrum of fund types as it moves closer to its 6% target allocation of total assets to private equity investments.

Other public pension funds increasing their exposure to private equity include Ohio Public Employees' Retirement System (OPERS) and Teachers' Retirement System of the State of Illinois (TRSI). OPERS has announced an increase of its private equity target allocation from 7% to 10% of total assets over the course of 2012, and will continue to make commitments across all areas of the private equity market, as recommended by its investment consultants. TRSI, along with increasing its long-term target allocation from 10% to 12% in April 2011, announced that it would allocate between USD 900 million and USD 1.4 billion to new private equity commitments each year between 2012 and 2018. TRSI made the decision to increase its private equity exposure based on the consistently strong performance from the asset class since its inception.

There are several other US-based public pension funds that have announced plans to increase their long-term target allocations to private equity. This includes Los Angeles City Employees’ Retirement System (LACERS), Employees' Retirement System of the State of Hawaii (HIERS) and San Francisco City & County Employees' Retirement System (SFERS). LACERS, HIERS and SFERS have increased their targets from 9% to 12%; 2.5% to 5%; and 14% to 16% of total assets respectively.

Although the global private equity market has shown signs of improvement in recent months, some public pension funds, including KPERS and OPERS, have expressed concern over the stability of more developed economies, particularly in light of the recent sovereign debt crisis in Europe. A recent study by Preqin revealed that while 70% of LPs are not avoiding any regions where they would have invested previously in light of recent instability in financial markets, some 18% of investors that would have previously invested in Europe expects to avoid investing in the due to the difficult financial climate.

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