Chart of the Week: Average allocations by institution type

Asset managers and family offices allocate the most to private equity, on average.

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Family offices are second only to asset managers as the investor type with the highest average allocation to private equity. Family offices typically have a lower need for liquidity than other institutions so can tolerate a greater component of alternative investments within their portfolios. For example, the Acropolis Capital family office allocates 25 percent of its portfolio to private equity whilst the Richmond Memorial Health Foundation allocates 13.4 percent to private equity.

 

In our recent survey with family offices and charitable foundations, we discovered that these institutions allocate a greater proportion of their portfolios to private equity than more regulated investors. One third of respondents have more than 20 percent of their assets invested in private equity in a wide range of strategies, including direct investments, co-investments and secondaries. This reveals that not only are they active investors, they are also sophisticated.

 

The public pension funds that we profile have an average allocation of 6.1 percent to private equity. Although lower than family offices and foundation, pensions are clearly significant and long-standing backers of private equity funds.  For example, the New Jersey Division of Investment committed $300million to Carlyle’s sixth US fund in November and it has an allocation of 8.02 percent to private equity.  

 

The LP50, our ranking of how much institutions committed to private equity between March 2012 and February 2013, highlighted that pension funds were strong backers of the asset class. The Canadian Public Pension Investment Board topped the ranking, having committed almost $4 billion to private equity funds in the period concerned. 29 of the 50 constituents of the ranking were also pension funds.

 

The Insurance companies that we profile have on average the smallest allocation to private equity. A number of profiled insurance companies fell out of this pool due to pressures from Solvency II forcing sales of entire portfolios, but those who were not forced to sell any of their assets, such as Nordea Life and Pensions, have had its allocation to private equity suffer due to these pressures- Solvency II proposes that insurances companies hold significant cash reserves alongside private equity fund investments. Suomi Mutual Life Assurance Company’s allocation to private equity has also suffered due to the pressures from Solvency II and it has had to sell its private equity investments on the secondary market. It now has a zero percent target allocation to alternatives.

 

However, there are still a number of insurance companies in North America and Asia-Pacific which are still very active within the asset class, which is why the average allocation is not lower. CUNA Mutual Insurance Society currently allocates 5.81 percent of its investments to private equity, whilst KDB Life Insurance has an allocation of 10 percent to private equity.