Private equity surges at US pensions

Private equity returns for FY 2011 at some of the largest pensions in the US have contributed to record high overall performance figures.

A number of US pensions have reported record performance figures for the fiscal year 2011, thanks in part to strong returns from the private equity asset class. 

The California State Teachers’ Retirement System’s private equity portfolio posted a 22.5 percent return for the 12-month period ending 30 June 2011, outperforming its benchmark return for the asset class of 20.7 percent. CalSTRS’ entire portfolio, 14.3 of which is allocated to private equity, generated a 23.1 percent return for FY 2011, the highest for the pension in 25 years and well above its assumed rate of return of 7.75 percent. The value of CalSTRS’ total portfolio now stands at $154.3 billion.

A spokesperson for the pension was not available for comment at press time.

Preliminary results from the California Public Employees’ Retirement System – through 31 March 2011, not 30 June – yielded a 25.3 percent return for private equity and an overall return of 20.7 percent, the best performance for the pension in 14 years and the highest return since the economic downturn. Private equity outperformed its benchmark return by .55 percent, or 55 basis points.

CalPERS’ alternative investment management programme represents about 14 percent of the entire portfolio. “[AIM] has done very well, outperforming its benchmark by 470 basis points,” CalPERS senior investment officer Réal Desrochers said during an earnings call Monday. “The portfolio has invested approximately 65 percent in the US.” The rise in private equity performance was due in part to rebounding valuations in the large buyout portion of the portfolio, Desrochers added.

CalPERS chief executive officer Joe Dear said during the call that the results were “pleasing”, but that “there’s reason to be cautious….The underlying economic conditions responsible for the surge in equity value is largely the product of extraordinary fiscal and monetary stimulus by the government and at least one of these – the fiscal stimulus – is being withdrawn”.

CalPERS’ total assets stood at approximately $237.5 billion as of the end of the fiscal year.

The New York State Common Retirement Fund’s private equity portfolio generated a more modest 18.9 percent return for the period ending 30 June, 2011, but enough to help the third largest US public pension’s total assets grow to $146.5 billion, the highest since the downturn. In September 2010, the fund lowered its assumed investment rate of return to 7.5 percent.

Real estate investments posted positive returns at all three pensions. CalSTRS and CalPERS saw returns of 17.5 percent and 10.2 percent respectively, while New York State posted a 26.7 percent return. CalSTRS’ real estate portfolio exceeded its benchmark return by 1.5 percentage points, while CalPERS’ real estate investments came in significantly below its 20 percent benchmark.