Sovereign wealth funds are increasingly competing with pension plans for commitments in private equity funds – and it's a change to be welcomed, according to Charlie Eaton, founder and partner at placement agent and advisor Eaton Partners.
“They're pretty much overwhelming US pension plans in terms of dollar amount they can commit,” he told Private Equity International earlier this summer. “It's welcome because some of the state pension funds are restricted from working with placement agents.”
Eaton pointed to several pension plans – including the California Public Employees' Retirement System, the California State Teachers' Retirement System and most public pension funds in New York State – that have banned the use of placement agents due to pay-to-play illegal activities that took place in some states several years ago.
Eaton believes such bans are “unnecessary and unfair”, and in 2009 he led an effort to prevent the Securities and Exchange Commission from enacting a proposed nationwide ban.
Nonetheless, the bans did curb profitability. But the growing presence of sovereign wealth funds in the investor base has presented a new opportunity for Eaton Partners.
Eaton said sovereign wealth funds have multiplied over the last few years and are making larger commitments to funds, as well as to separate accounts and co-investments. “In the last year or two, we've had several situations where sovereign wealth funds have taken 20 percent of a fund,” he said.
As an example, he cited the cases of a US buyout fund, an energy fund, a healthcare fund and a fund focused on the aerospace industry each receiving several-hundred-million-dollar commitments from a sovereign wealth fund.
“That money from the sovereign wealth funds has really ballooned in the last few years,” he said. “It's very large and very meaningful.”