(February 4, 2013) – Public pension funds with at least $5 billion in assets under management had a better 2012 than any other class of institutional investor in the United States, according to Wilshire Associates data.
For the 2012 calendar year, large plans had a median return of 13.43%, compared with 12.69% for public funds as a whole, the Santa Monica-based consultancy found. This correlation between size and performance remained consistent over varying time horizons: large public plans’ returns topped those of smaller funds for the final quarter of 2012 as well as over the last ten years.
Large institutional investors fared better than their smaller counterparts across the board, according to Wilshire Managing Director Robert Waid. “All plans with assets greater than $5 billion was the top performing category with a median 2012 return of 13.45%,” Waid said in a statement. “All plan types had a median return of 12.38% making this the fourth year in a row of positive median returns. Three of those four were double digit gains. Nine out of the last ten years all plan types had positive returns … Leading the way, foundations and endowments with assets greater than $500 million had the best 10-year median return at 8.22%.”
The Foundations/endowments category had a weaker performance in 2012 relative to other investor classes, posting 12.17% median returns. Corporate funds, in contrast, returned 12.82% last year.
The Wilshire report notes that median asset allocation differs significantly among small (less than $1 billion), medium ($1 billion to $5 billion), and large public pension plans. Funds in the last category had more than double the international equity exposure that small plans did in 2012 (22.3% versus 10.6%). Wilshire’s data also indicates that funds with more than $1 billion in assets hold nearly 10% of them in alternatives, while small pensions allocate essentially nothing to that bucket.
Recent research out of the University of Toronto suggests that greater size does work to funds’ advantage with private equity (PE) investments. “Our first finding is that investors with large PE investments perform substantially better in PE than investors with small PE investments,” authors Lukasz Pomorski and Alexander Dyck wrote. “This relationship between investor scale in PE and PE performance is monotonic in PE holdings, robust, and consistent across time and geographies.”