Tags: Pension | funds | private | equity

WSJ: Pension Funds Endure Weak Returns from Large Private Equity Firms

By Dan Weil   |  

Public pension funds that have invested in the largest private equity offerings face paltry returns at a time when they’re more desperate than ever for income.

In an environment of record low interest rates, the pension funds have come to count on private equity returns to help them meet their massive obligations, The Wall Street Journal reports.

As of June 30, pension funds with assets greater than $5 billion had an average exposure to private equity of 13 percent, up from 9.5 percent a year earlier, according to Wilshire Trust Universe Comparison Service.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

When it comes to performance, among private equity funds launched in 2006, those that manage $3.5 billion or more have appreciated only 4.1 percent annually, according to Cambridge Associates.

That compares with gains of 14.1 percent for funds managing less than $300 million and 9.7 percent for those managing $1 billion to $3.5 billion.

"Private equity is perceived as an absolute return strategy,'' Luba Nikulina, head of private markets at consulting firm Towers Watson, tells The Journal.

"Investors are taking more risks and using more leverage so they expect returns in the mid-teens, not in the single digits."

The disparity of performance between large funds and small funds often occurs throughout the investment universe, including in hedge funds and mutual funds.

That’s because large funds have narrower investment choices, as they must commit a large sum. And each winning investment often has a smaller impact on a big fund.

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

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