By The Numbers: Public Pensions Studied Miss Out On ~$1.8B/Year By Investing Locally
It sounds like a win-win for public pensions. By allocating an outsized portion of their private-equity allocations to home-state firms, they not only harvest high risk-adjusted returns they also give an assist to their local economies. But a fresh study by Yael V. Hochberg (pictured), assistant professor of finance at Kellogg School of Management at Northwestern University, and Joshua D. Rauh, an associate professor of finance there, suggests the approach is a costly one. The in-state private equity investments made by public pensions, the researchers found, “perform significantly worse” than those that they make outside their home states. The paper, “Local Overweighting and Underperformance: Evidence From Limited Partner Private Equity Investments,” takes a look at 18,828 investments by 631 different investors (public pensions, corporate pensions, endowments, foundations) in 3,554 private equity funds, including venture capital, buyout, and real estate funds, with vintage years spanning roughly 1980 to 2009.
