Joanna Nolasco April 01, 2016
The past year has revealed a somewhat complicated relationship between U.S. public pension funds and their private equity managers. Reports began to circulate last summer that CalPERS—the largest U.S. pension fund—wasn’t sure how much its PE fund managers had collected in profit-sharing fees, claiming a lack of consistency in reporting; the oversight brought into question the true gains from those investments. Months later, the Institutional Limited Partners Association launched a fee-reporting template to imbue transparency into fund manager expenses.
Following the stir around fees, CalPERS upheld its PE allocation, revealing that its private equity program had added $24.2 billion in realized net gains from 1990 to June 30, 2015. “Private equity has the highest net returns in our portfolio," said Ted Eliopoulos, CalPERS' chief investment officer. "As a long-term investor, it is an important piece of our investment strategy[.]”
Fee-reporting issues aside, commitment numbers seem to indicate that U.S. public pensions have maintained confidence in private equity and venture capital. According to PitchBook data, U.S. public pension funds made 936 commitments to PE and VC funds in 2014 for a total value of $61.3 billion—a 26% increase in number and 47% increase in value from commitments two years earlier. Our 2015 data so far** shows that commitments to PE and VC remain at an elevated level, with 769 commitments for a total value of almost $58 billion.
Within PE and VC fund types, U.S. public pensions have committed the most to buyout vehicles, both in number and total annual value of allocations. Given depressed oil prices, it’s perhaps no surprise that commitments to energy funds swelled to $7.5 billion in 2015, over double the $3.6 billion committed to energy in 2012. Venture capital funds have also seen a recent rise in allocations with a total of $3.5 billion in 2015, a 37% increase from the $2.6 billion total commitments three years earlier.
By global region, U.S. public pensions have kept a vast majority of PE and VC allocations within North America. Interestingly, these LPs have increased commitments to Central & South America-focused funds in recent years, from a total of almost $30 million in 2012 to $988 million in 2014 and $212 million tracked through 2015 so far.
Here are some of the largest U.S. pension fund commitments to PE and VC funds since 2013:
** Due to reporting cycles, PitchBook's 2015 commitment data is expected to increase in the coming months. The 2015 data in this article refers to commitments recorded as of March 28, 2016.
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