INSTITUTIONAL INVESTOR SENTIMENT SURVEy - PEI Media

Focus on… Pension Funds
Distribution of Pension Funds by Region
350
300
250
No. per region
200
150
100
50
0
Asia-
Pacific
CEE
Source: Private Equity International
Latin
America
MEA
North
America Western
Europe
institutional
investor
sentiment
survey
Pension funds have primarily invested in buyout funds with 60 percent of all pension
funds currently or previously investing in the fund strategy, primarily in North America
and Western Europe. In particular, North American pension funds have a considerable
preference for domestic vehicles, with just over 90 percent of all American and Canadian
pension funds currently invested in Northern American private equity funds. Similarly,
Asia-Pacific pension funds exhibit an almost identical trend, with 90 percent of all pension
funds investing in a regional private equity fund.
But with the growing prominence of emerging markets, pension funds are increasingly
looking to take advantage of opportunities presented in these regions. China, in particular, has
fast become a very attractive destination for capital, with better regulation of markets and a
more stable investment environment. Currently, 45 percent of all pension funds globally have
an appetite for investing in Asia-Pacific private equity funds.
In addition, uncertain market conditions have led to the rise of separate accounts and
co-investment partnerships. Pension funds are taking a greater interest in how their capital is
being utilised, and both of these investment strategies provide investors with a higher degree of
control and transparency. CalPERS CIO Joseph Dear outlined some of the benefits of creating
customised arrangements with managers, namely “better alignment of terms and conditions”.
Given that investors are wary about forming new relationships with fund managers in the current
economic climate, it makes sense for pension funds to take advantage of their existing GP
relationships, especially if they intend to maintain the size of their private equity programmes.
The Employees Retirement System of Texas launched a co-investing programme in late
2011 in a bid to slash their fees and carry expenses. At the same time, the retirement system
does not intend to lower their overall commitment to the asset class, choosing instead to form
fewer new relationships, paving the way for more tailored LP-GP agreements.
As the private equity industry gears up for the second half of 2012, there are two clear
trends emerging from the financial downturn and the European sovereign-debt crisis. There
will be a gradual improvement for pension fund assets coinciding with the growing importance
of emerging markets in addition to an increasing level of scrutiny by pension funds on their
limited partnerships.
foreword
executive summary
allocation
fees
lp – gp relationship
future investments
and concerns
appendix: global
fundraising
page 5
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