Private assets will continue to grow in investment portfolios, and pension fund executives remain on the lookout for opportunities uncovered by the coronavirus pandemic.
While the pandemic has caused a market downturn, investors have also found opportunities in private equity, real estate and other private assets, pension fund executives said at Pensions&Investments' WorldPensionSummit conference Thursday.
So far in 2020, USS Investment Management's private assets allocations have "done well and they've done badly — they've done a mixture of different things," said Simon Pilcher, CEO of the in-house manager for the £75 billion ($96.8 billion) Universities Superannuation Scheme, London. "Some of our assets have done exactly what we'd hoped them to do," Mr. Pilcher said.
Some have struggled because of their area of focus, such as transportation-linked assets. "I guess it's a bit of a case of you win some and you lose some. And you hope that, across the piece, that they're complementing assets (to what) you've got in the public side of the markets." USS manages about £18 billion in private assets.
Katja Salovaara, senior investment officer-private equity in the bureau of asset management at the New York City Comptrollers' Office, which manages $221 billion in assets on behalf of five pension plans, said the pension funds' external private assets managers have been prepared for the downturn. "It's been active on the investments side and on the exit side," Ms. Salovaara said. "Some companies have been doing well in this environment," she said.
Andrew Halsey, head of group global pensions at ABB Group, Zurich, who appeared on the same panel, said about his fund, which has a $2 billion private markets allocation out of a total $15 billion: "We are ramping up private equity." Mr. Halsey, however, is less keen on private debt but said he is looking at opportunities in infrastructure.
Executives also expect private assets to grow as a proportion of institutional portfolios over time. Mr. Pilcher doubts that allocations will grow to more than 50% of institutional portfolios as there are challenges around cost, liquidity and competency.
For USS, "we expect private assets will continue to grow as a percentage of what we're doing. We're at a quarter today. ... I see that rising to probably a third or maybe more than that in coming times," he said. However, illiquid assets are only suitable as long as they're used to match illiquid liabilities. "We have the great benefit of having illiquid liabilities. And the minute your liabilities are liquid, then private assets clearly don't really fit the bill," Mr. Pilcher said.
