Pension Investment in Private Equity for Secure Futures

Pension investment in private equity can be a game-changer for your financial future.

Private equity investments have historically outperformed public equity markets, with returns averaging 10-15% per annum over the past few decades.

This is because private equity firms can invest in companies that are not publicly traded, allowing them to take a more active role in management and strategy.

Private equity firms can also hold onto investments for longer periods, giving them time to turn around struggling companies and increase their value.

In contrast, public equity markets are often driven by short-term thinking and speculation, which can lead to volatility and lower returns.

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Investing in private equity through your pension can be a great way to grow your retirement savings.

Private equity investments have historically outperformed traditional assets like stocks and bonds.

You can diversify your pension portfolio by adding private equity, reducing dependence on a single asset class.

Private equity investments can provide a steady income stream through dividend payments and capital appreciation.

For example, some pension funds have reported returns of 15% or more from private equity investments.

Private equity investments can be a low-risk option compared to other alternative investments.

Private equity has proven to be a strong returning asset class in public pension portfolios, with a median annualized return of 12.3 percent over a 10-year period in 2020.

This is according to the 2021 Public Pension Study by the AIC, which analyzed 178 U.S public pension funds representing nearly 34 million public sector workers and retirees. 85 percent of these public pensions had some exposure to private equity.

Private equity makes up 9 percent of public pension portfolios on a dollar-weighted basis. This suggests that many pension funds are diversifying their portfolios with private equity investments.

A poll by Preqin found that 53 percent of investors plan to increase their allocations to private equity, while 43 percent plan to maintain their current allocation. Only 4 percent of investors plan to decrease their allocation to private equity.

The top 10 public pension funds by private equity returns are:

Pension investment in private equity started in the United States and Canada in the late-1970s, an era of high inflation and mediocre performance for most listed equity markets.

Large institutional investors began to diversify into non-traditional asset classes such as private equity and real estate during this time.

The trend towards increased allocation to private equity including venture capital accelerated after 2009-2010.

Experts from the World Pensions Council predicted that the Great Recession would usher in an era of durably low interest rates, pushing pension and insurance investors to pursue a 'quest for yields' and increase their allocation to non-traditional asset classes.

This shift has led to a significant expansion of private equity commitments by pension funds, as they seek to capitalize on new opportunities.

By acting on recommendations and scaling up their private equity investments, pension funds can unlock new capabilities and achieve their investment goals.

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Pension investment in private equity has shown significant returns. In fact, a study found that private equity investments outperformed public markets by 4.5% annually between 2010 and 2015.

Private equity investments have also been shown to be less volatile than public markets, with a lower standard deviation of returns. This is likely due to the long-term focus of private equity firms.

Additional reading: Private Equity Returns vs Public Markets

Returns from private equity investments can be substantial, with some funds generating returns of over 20% per year. However, these returns are not guaranteed and can be affected by a variety of factors.

Pension funds have been increasingly turning to private equity investments in recent years. In 2019, pension funds allocated 7.4% of their assets to private equity, up from 5.6% in 2015.

Overall, the data suggests that private equity investments can be a valuable addition to a pension fund's portfolio.

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