Los Angeles Fire and Police Pension System, Florida State Board of Administration and the California Public Employees’ Retirement System are the US public pensions with the best-performing buyout portfolios, according to the 2018 HEC Limited Partner Buyout Performance Ranking.
Paris-based HEC, an educational and research institute, ranked private equity buyout portfolios from 2004 to 2013 vintages. LAFPP came first with an aggregate risk score of 0.80 and an aggregate return score of 1.56. The $21.5 billion pension has a 10 percent target allocation to private equity that stands at 9.1 percent. It has backed buyout funds managed by Bain Capital and CVC Capital Partners, among others, according to PEI data.
The $205 billion Florida SBA ranked second, with a return score of 0.61 and risk score of 1.32. It has backed buyout funds from Thoma Bravo, Apollo Global Management and Lightbay Capital.
CalPERS, which has $345 billion in assets, was third with a 0.91 risk score and 0.74 return score. The US’s biggest public pension said in November that it made a $600 million commitment to Carlyle Partners VII and $437.5 million to Bridgepoint Europe VI. New York State Teachers’ Retirement System, State Teachers’ Retirement System of Ohio, Public Employee Retirement System of Idaho and Minnesota State Board of Investment also made the top 10.
According to HEC, the ranking answers the question: “Which limited partner buyout portfolio generated the best performance, considering return and risk, over the past years?”
Two criteria were used: the aggregate return score of an LP portfolio based on different performance measures for all the funds in the portfolio developed by advisory PERACS, and a risk co-efficient that shows the strength of the value of the funds in their portfolios from a “value at risk” perspective, based on the eFront VaR method.
The study analysed performance data from 158 US pension funds. They made 3,431 fund commitments into 569 buyout funds between 2004 and 2013, and the aggregate equity volume was $255.5 billion.
The US public pension funds HEC selected for the study had committed to at least 25 buyout funds over the period with a total commitment size of at least $100 million.
Another report published in May showed US public pensions’ PE programmes consistently outperformed public markets benchmarks. Private equity produced a 10.7 percent annualised return across 21 state pensions between 30 June 2002 and 2017, according to investment advisor Cliffwater. This compares with 6.6 percent generated by a custom public equity benchmark weighted 70 percent to the Russell 3000 Index and 30 percent to the MSCI ACWI ex-US.