Pension funds step up private equity investments

Figures published by the BVCA highlight an increase in pension fund investment in private equity, a trend that is expected to continue over the coming years.

This years BVCA Report on Investment Activity has highlighted a major increase in investments made by UK pension funds, which have doubled their level of investment from £817m to £1.6bn for 2001.

The increase of international pension fund capital flowing into the UK private equity industry also provides cause for optimism. Of the £12.2bn raised in 2001 by UK private equity firms (up 36 per cent on the previous year’s figures), a total of £5.2bn was provided by pension funds, of which £3.6bn came from overseas funds.

Keith Arundale, partner at Pricewaterhouse Coopers, said the results highlight the fact that US pension funds continue to lead the way in private equity investing. 'US pension funds have been investing over a much longer period and their higher allocations are the result of their drive towards producing a broader range of investments.'

The past year has seen a greater move into private equity investment particularly by pension funds controlled by UK local authority schemes. 2001 saw the South Yorkshire Pension Authority, Leicestershire County Council and West Sussex all commit to the asset class, with Shropshire County Council one of many to continue the trend into 2002.

Going forward, private equity firms will be hoping to further increase their slice of UK pension fund assets, which currently stand at around £800bn. According to Mark Drugan, investment manager at Westport Private Equity, the level of pension fund investments from UK funds is likely to increase in the coming years. 'Pension funds are likely to invest larger sums into private equity as they look to create greater diversity in their coverage, partially as a result of recommendations from the Myner's report.'