Asset AllocationOctober 31, 2014

Private Equity Appetite: Public vs. Private Pension Plans

<p>US public pension plans thought more globally than corporate funds, with higher allocations to emerging market private equity. </p>

Reported by Featured Author

More US private pension plans invested in private equity than their public counterparts in 2014, but their allocations were generally smaller, according to Preqin.

The data firm’s survey revealed 416 corporate pension funds invested in the asset class this year, compared to 298 public funds. Allocation size was the opposite, however, with public funds trumping private by more than 1%.

US public and private pensions made up approximately 24% of the world’s private equity investors and 55% of all pension funds allocated to the asset class.

The two types of pension plans shared an appetite for funds of funds, the survey found. Almost three-quarters of public funds and 69% of corporates said they preferred the fund type or have had previous exposure.

“They are popular because they offer increased exposure to a variety of funds, at reduced risk to the investor,” Preqin said.

preqin private equity pensions Buyout funds were also popular among both public and corporate funds, with 60% of each already allocated to the fund. Public pension plans were more partial to investing in natural resources, timber, and mezzanine funds than private plans.

Preqin also found public pension plans had a more global investor mindset in investing private equity. More than half of public funds said they invested in Asian private equity and 45% in emerging markets, compared to 39% and 30% of corporate plans.

A separate survey by Preqin in October showed 86% of surveyed investors stated their commitments in the asset class have met or exceeded their expectations in the past 12 months.

The final quarter of 2014 is expected to see significant activity in private equity, supported by strong fundraising and record levels of dry powder.

According to its data, a record 2,205 funds—with an aggregate target of $774 billion—are seeking capital from investors, indicating heightened movement closing the year and into 2015.

“The third quarter of the year is typically a quieter one for the industry, and with several mega funds currently in the market, fundraising is likely to pick up again towards the end of the year,” said Christopher Elvin, head of private equity products at Preqin.

Elvin added private equity funds are sitting on a record $1.2 trillion of cash waiting to be deployed.