Pension plans exist to accumulate capital for their members over the long term. Private equity is a long-term investment play and is capable of generating more capital gain than many other asset classes. Enough said?
Not if you're talking to trustees at UK pension funds. Notable exceptions notwithstanding, these fiduciaries have held out longer than most other European investors in their reluctance to commit to the asset class. ‘It's too risky, too time-consuming, too expensive. Thanks but no thanks’ is what advocates of private equity have been hearing from this group for longer than they care to remember.
longer than they care to remember. Now, post Myners, there are signs that this attitude is changing, albeit slowly. Given trustees’ broad remit – they typically oversee a pension's entire investment activity, of which private equity makes up at best a small proportion – they still struggle to muster the time and understanding it takes to do private equity seriously and well. But, according to market practitioners, more trustees are now showing an interest. That's a start – and worth a closer look in this month's cover story.
In their efforts to get up to speed on the topic, UK trustees could do worse than taking a leaf out of the book of their peers in Switzerland. Not that plan managers there have got it all right: as Recovering investors on page 52 of this issue reveals, Swiss pensions have recently suffered their fair share of alternative investment pain as a result of the downturn. But at least they did go into the asset class and, according to local practitioners, are in no mind to quit despite the setbacks. General partners in fundraising mode should pay them a visit.
Philip BorelManaging Editor