eVestment: Public Pension Plans Gravitating to Real Assets, Private Equity

The trend may help introduce more transparency in these private markets since public plans are held accountable, firm says.

Public pension plans are increasingly interested in making allocations to real asset and private equity investments, eVestment reports, based on its analysis of these investors’ second-quarter allocation strategies.

The Atlanta-based investment services provider finds that 85 of the new investment commitments by public pension plans in the second quarter favored real assets strategies, while 68 went to private equity plays. Private debt, with 29 new commitments, and equity, with 28 commitments, followed. “Real assets” includes real estate, land, and other tangible assets such as commodities or machinery.

Fixed-income, hedge fund, and multi-asset investments drew 11 new commitments each in the second quarter, with private equity fund-of-funds strategies trailing with two new commitments.

“US public pension plans are continuing to place capital with real assets and private equity funds as they seek to diversify their portfolios and increase exposure to higher return and income-generating asset classes,” said Graeme Faulds, eVestment’s director of private markets solutions. “The trend is clear for these asset classes: there is likely going to be continued flows of new money in that direction and managers need to be ready for it.”

The Q2 survey results echoed results from Q1, in which public pension plans made the most new commitments to real assets, at 70, and private equity strategies, at 67. New allocations to equity, at 35, and private debt, at 32, were next. Fixed income garnered 15 new commitments in the first quarter, followed by hedge funds, with 12, and private equity fund-of-funds and multi-asset investments, with six new commitments each. Trailing the list were hedge fund fund-of-funds investments, with two new commitments, and real assets fund-of-funds investments, with one new commitment.

Soaring investor demand for private equity has allowed fund managers to raise fees in 2017, according to the research firm Preqin. 

 This trend towards public pension funds’ favoring of more opaque private market investments such as real assets and private equity, which continues from the second half of 2016, will likely make for more transparency in these asset categories, eVestment believes, considering that public pension plans are held accountable for their actions.


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