PE shines among Wisconsin’s lackluster returns

Private equity returns for the Wisconsin Retirement System dipped slightly from 25.5 percent in 2006 to 24.8 percent in 2007, but outperformed every other asset class in the pension fund’s portfolio.

The Wisconsin Retirement System’s private equity assets returned less in 2007 than in 2006, but far exceeded other asset classes in the $88 billion (€60 billion) system’s portfolio. Private equity assets returned 24.8 percent for 2007, surpassing overall returns of 8.8 percent for the pension’s $81 billion core fund, most of which is allocated to public equities, and 5.6 percent for its $7 billion all-stock fund.

The overall returns represented respective drops of 43.6 percent and 68.2 percent from the pension system’s 2006 returns, when the core fund returned 15.6 percent and the all-stock fund returned 17.6 percent.

Keith Bozarth, executive director of the pension’s investment board, attributed the results to volatility in the public equity markets.

“The good news is that both trust funds had positive performance during very difficult markets,” Bozarth said. “The mortgage crisis, rising oil prices and a weak dollar contributed to a great deal of volatility throughout the year and a disappointing fourth quarter for the stock market.”

Public equities returned 7.1 percent overall, down from 19.3 percent in 2006. Fixed income returned 8.5 percent, up from 5.4 percent in 2006. Real estate returned 18.9 percent, down from 30.1 percent, and private equity returned 24.8 percent, down from 25.5 percent.

The funds are managed by the State of Wisconsin Investment Board. For 2007, the core fund allocated 58 percent of its assets to public equities, 30 percent to fixed income, 5 percent to real estate, 5 percent to private equity and 2 percent to a multi-asset class.

In the past the pension has invested with private equity funds managed by 3i, Apollo Management, The Carlyle Group and Wind Point Partners. It recently hired advisory group StepStone to manage specialised private equity fund investments.