The Interdependence Between Private Equity and Pension Funds

The Interdependence Between Private Equity and Pension Funds

Continuing its commitment to the private equity industry, the Private Equity Growth Capital Council has submitted a whitepaper to the House Ways and Means Committee Working Group on Pensions and Retirement titled, “Long-Term Commitments: The Interdependence of Pension Security and Private Equity.” The whitepaper highlights the significant amount of capital pension funds commit to private equity and the financial gains they receive from the outperformance of these investments. A link to download a copy of the whitepaper is available at the end of this article.

“Private equity plays a significant role in securing the retirements of millions of teachers, firefighters and police officers across the United States. In turn, pension investments in private equity provide the needed capital to strengthen and grow companies,” said PEGCC President and CEO Steve Judge. “This whitepaper demonstrates how private equity and pension funds are inextricably linked to each other’s success.”

Despite losses from other investment strategies during the Great Recession, one bright spot for pensions is the superior performance of private equity funds, which helped buoy overall pension returns. The PEGCC research found that the median public pension portfolio received 8.8% in returns from private equity, compared to 3.7% in public equity and 5.7% in total portfolio returns, annually over the past ten years.

Click image to enlarge

“Pension fund commitments make up 43 percent of overall private equity investment and are essential to the private equity industry, just as private equity’s superior returns are vital to the financial health of pension funds,” said Bronwyn Bailey, PEGCC Vice President of Research. “Investments in private equity are the only asset class to produce annualized 10-year returns over the average pension target return of 8 percent. Without private equity returns, public pension plans across the country would incur greater unfunded liability, possibly resulting in higher pension contributions by employees and a spike in taxes paid by local residents,” Ms. Bailey concluded.

Over the last ten years, public pension funds saw their portfolio performance dip well below their targets, i.e., the investment return necessary to fund the retirements of the teachers, police, firefighters and other employees who rely on their pensions for financial security during their advanced years. If investment returns do not provide enough revenue to finance liabilities, the shortfall will be paid by pension employees or their employers, i.e., state and local governments that are funded by taxpayers.

The private equity industry in the U.S. comprises nearly 2,600 investment firms. They operate nearly 15,300 U.S.-based businesses in all 50 states and all Congressional districts. These companies employ approximately 8.1 million people. In 2011 alone, U.S. private equity firms invested nearly $144 billion in over 1,700 U.S.-based companies. The private equity industry has distributed over $1 trillion to its limited partner investors over the past three decades.

The Private Equity Growth Capital Council is an advocacy, communications and research organization, and resource center established to develop, analyze and distribute information about the private equity and growth capital investment industry and its contributions to the national and global economy. Established in 2007, the PEGCC is based in Washington, D.C. (

Click HERE to download “Long-Term Commitments: The Interdependence of Pension Security and Private Equity”.

© 2013 PEPD • Private Equity’s Leading News Magazine • 4-12-13

To search in site, type your keyword and hit enter