Private equity tops public pension asset classes

Private equity has been good to U.S. public pensions. In the decade ended June 30, the asset class returned a median 13.7%, with the median return among the top 10 plans a bit higher at 15.6%.

Recent data from the American Investment Council show the $19 billion Illinois State Board of Investment, Chicago, led the 176 plans surveyed with a 16.7% annualized return over the 10-year period, followed closely behind by the 16.4% posted by the $76 billion Massachusetts Pension Reserves Investment Management Board, Boston. The Illinois State Board of Investment's private equity allocation was about $751 million according to P& I's Top 1000 Plan Sponsor Survey, but only 3.9% of total plan assets. Perhaps recent performance will encourage the plan sponsor to increase its allocation.

Allocations varied widely among the top performing private equity portfolios compared to the more closely grouped returns. The $25.9 billion San Francisco City & County Employees' Retirement System led with a 21.1% allocation according to Pensions & Investments data. The median allocation among these plans was 11.9%.

In dollar terms, California Public Employees' Retirement System, Sacramento, with 2 million members, had about $26.5 billion invested in private equity, leading the survey constituents. However the allocation represented only about 6% of its massive $400 billion plan. Only the $70.5 billion Michigan Retirement Systems, East Lansing, was among both the top returning plans and the top plans by private equity allocation.

The median private equity return edged out the median public equity return of 12.7%. The median real estate portfolio return was an annualized 9.3% over the trailing 10-year period and fixed-income portfolios added 5.2% on an average annual basis.