With 2Q closed out, new data shows public pension plans in the United States are increasingly favoring exposure to real assets and private equity strategies.
Of new investment commitments announced by U.S. public pension plans in 2Q 2017 and tracked by eVestment’s Public Plan IQ solution, 85 were for real asset strategies and 68 were for private equity. These were far-and-away the most popular new commitments announced in 2Q 2017. In the context of institutional investing, “real assets” frequently means real estate and land, but can also include other tangible items such as commodities or machinery.
By comparison, private debt strategies saw 29 new commitments from public pension plans in 2Q, equity strategies saw 28 new commitments in the quarter and fixed-income, hedge-fund and multi-asset strategies all saw just 11 new commitments. Public Plan IQ follows and collects data and documents on 250 of the largest public pension plans in the United States and thus serves as a unique proxy for trends in the overall public pension industry.
Real assets and private equity also held the No. 1 and No. 2 spots in 1Q 2017, with 70 and 67 commitments respectively, a trend that continued from the last half of 2016 with real assets and private equity holding the top two spots in 4Q and 3Q 2016 as well. In 4Q 2016 private equity was No. 1 with 70 announced public plan commitments and real assets came in at No. 2 with 62. In 3Q 2017 real assets held the No. 1 spot at 48 announced commitments and private equity stood at No. 2 with 46 commitments. (See full chart attached).
“U.S. public pension plans are continuing to place capital with real assets and private equity funds as they seek to diversify their portfolios and increase exposure to higher return and income-generating asset classes,” said Graeme Faulds, eVestment’s Director of Private Markets solutions. “The trend is clear for these asset classes: there is likely going to be continued flows of new money in that direction and managers need to be ready for it.”
As public plans become more interested in private equity, real assets and other private markets asset classes, managers who hope to capture these commitments will have to adjust their procedures in several areas, including due diligence, reporting and compliance.
“Public plans have higher standards for transparency and reporting than many other institutional investors since they are publicly accountable to their constituents” said Faulds. “Tools like eVestment’s TopQ software solution can help investors and consultants streamline their due diligence processes and give private markets investment firms the transparency they need to win commitments from these public plans.”
Public Plan IQ is the leading research service for aggregating the competitive intelligence of U.S. state and local government pension plans. For more information about Public Plan IQ, please visit https://www.evestment.com/products/public-plan-iq/.
TopQ is eVestment’s private markets performance analytics solution that offers limited and general partners a sophisticated and configurable tool to more efficiently conduct quantitative due diligence and fund analysis, securely distribute track records and easily monitor the performance of private equity funds and portfolios. For more information on this solution, please visit https://www.evestment.com/products/topq/.