November 2, 2012

New Research Shows Pension Investment in Private Equity Outperforms All Other Asset Classes

PEGCC’s Bailey: “Even the lower tier of private equity… outperforms public equity’s top tier.”

Amid ongoing discussion of the value of private equity to the U.S. economy, new research released today by the Private Equity Growth Capital Council shows the significant outperformance of private equity investment for large public pension plans over long time horizons.  The research shows private equity delivered an 8.8 percent median 10-year annualized return to large public pension plans, the highest of all other asset classes.  According to the report, public equity, fixed income and real estate generated 3.7, 6.6 and 6.5 percent median 10-year annualized returns, respectively.

Click here to view an infographic of the data.

“There is no question of the value of private equity to public pension funds,” says Steve Judge, president and CEO of PEGCC.  “Private equity delivers for retirees and workers across the United States, helping secure the retirements of millions of Americans and strengthen the organizations they work for.”

The report also finds that private equity accounts for 9.6 percent of large public pension fund allocations and that pension private equity portfolios in the lower quartile yield better 10-year annualized returns than the upper quartile of public equity portfolios by nearly 2 percent.

“Our analysis shows even the lower tier of private equity portfolios outperforms public equity’s top tier.  Private equity is an essential asset class for pensions, as they look to achieve the returns necessary to meet their obligations to retirees,” said Bronwyn Bailey, PEGCC vice president of Research.  “During this period, private equity was the only investment class that surpassed public pensions’ annual actuarial targets of 7 percent to 8 percent,” she added. “Large public pension plans simply would not have a chance of achieving their financial targets, without the help of private equity,” Bailey concluded.

Click here for the full report.