Pensions build private equity exposure

Corporate pensions, foundations and endowments have continually increased their allocations to private equity over the past four years, according to a series of surveys by asset manager SEI.

Institutional investors may be shrinking commitment sizes to private equity, or culling portfolios to cut down the number of manager relationships, but corporate pensions are hiking their exposure to the asset class.

That’s according to a “quick poll” done by SEI, which sets up private equity funds of funds for corporate pensions, endowments and foundations.

In 2010, 54 percent of the 85 pension executives who responded to the poll said their pension was invested in private equity, according to SEI. Last year, 34 percent of respondents indicated they were invested in private equity, and in 2008, 47 percent confirmed private equity exposure.

“Our investors are looking for opportunities to diversify their portfolios and get returns to help get their pensions back on track on a funded status basis,” Jon Waite, director of investment management advice and chief actuary of SEI’s institutional group, told PEO in an interview. “Private equity is a fantastic opportunity and diversifier for them.”

On top of the overall increase, the survey also found that pensions with more than $300 million in assets were investing a greater percentage of the portfolio in alternatives. More than 77 percent of respondents from pensions with more than $300 million in assets invest 11 percent or more in alternatives, the survey said.

“Very large plans have investment staff that understand private equity investments and the private equity market a little bit better,” Waite said. “But I’m seeing that the smaller plans are also interested in diversification opportunities and they’re willing to entertain discussion and investment opportunities in private equity.

“In the smaller plans they do need some more hand-holding through that process, as well as the ongoing process,” Waite said.