US pension lifeboat's PE holdings rise

The Pension Benefit Guarantee Corporation, which inherits investment assets including private equity from the pensions of bankrupt companies, has $507m in uncalled commitments.

The Pension Benefit Guarantee Corporation, a US federal corporation that guarantees the defined benefit pensions of US private employers, has seen its private market assets go up to about 3 percent of its investment portfolio, which totals $66.8 billion. That’s an increase from about 1 percent reported in fiscal year 2009.

PBGC released its annual report this month that broke down assets under management, including private market holdings, which consist of private equity, real estate and debt investments. Private equity holdings increased to about $2 billion in fiscal year 2010 from about $1.2 billion in fiscal year 2009. Real estate assets decreased to $459 million from $596 million last year.

Generally, PBGC meets all capital calls.

PBGC spokesperson

PBGC was created in 1974 and protects the pensions of some 44 million American workers and retirees in 27,500 private single-employer and multi-employer defined benefit plans. PBGC is funded through insurance premiums paid by sponsors of defined benefit plans as well as investment income and assets from pension plans it rescues from bankrupt companies.

Led by Joshua Gotbaum, a former operating partner with turnaround firm Blue Wolf Capital, PBGC does not make private equity commitments on its own, but simply manages the investments it inherits, a spokesperson told PEO.

JPMorgan manages private equity investments for the agency, the spokesperson said. “Generally, PBGC meets all capital calls,” the spokesperson said. PBGC holds about $507 million in unfunded private equity commitments and $214 million in uncalled real estate commitments.

PBGC expects the underlying assets of the private market funds to be liquidated over the next 12 years, and has no plans to sell any fund investments, according to the annual report.

PBGC has considered becoming a more active investor in private equity and real estate. Last year, the federal corporation canceled private equity and real estate contracts with Goldman Sachs, JPMorgan and BlackRock worth some $2.5 billion after concluding that a former director may have acted inappropriately during the bidding process.

The three firms had been selected in 2008 to oversee PBGC’s foray into the private equity and real estate asset classes, beyond simply managing the investment holdings it inherited.

Former PBGC director Charles Millard, who joined in July 2008, had plans to change the portfolio strategy to include private equity and real estate allocations. An internal audit found that Millard had inappropriately communicated with some bidders while he was evaluating their partnership proposals.

PBGC is still considering a new asset allocation for the investment portfolio, though no time frame has been designated for completion of an allocation study, the spokesperson said.