Public Pension Fund Analysis October 2014
2 Methodology This study, conducted by the Private Equity Growth Capital Council uses data collected by Bison to examine the private equity investments of over 150 U.S. public pension funds. The information was collected either through direct communication with pension funds or from publicly available comprehensive annual financial reports. About Private Equity Growth Capital Council The Private Equity Growth Capital Council (PEGCC) is an advocacy, communications, and research organization established to develop, analyze, and distribute information about the private equity and growth capital investment industry and its contributions to the national and global economy. Established in 2007 and formerly known as the Private Equity Council, the PEGCC is based in Washington, D.C. The members of the PEGCC consist of the world's leading private equity and growth capital firms united by their commitment to growing and strengthening the businesses in which they invest. More information about the PEGCC can be found at www.pegcc.org. About Bison Bison is a financial technology company delivering software for analyzing private fund data. Bison s Performance Calculator empowers users to quickly identify and understand performance of funds and portfolios relative to peer benchmarks and market indexes. The Private Equity Monitor covers news, events, and performance data for fund managers and investors in the private equity and venture capital market. The new Bison Benchmark covers all vintage years since 1990 and is built on transparent performance data from LP reporting partners. Established in 2011, Bison is based in Boston, MA and clients include pension plans, endowments, buyout and venture capital managers. Try Bison s products free at www.bison.co.
3 Top 10 pension funds by private equity returns Rank Public Pension Fund Annualized 10-Yr. Private Equity Return 1 Teacher Retirement System of Texas 18.2% 2 Massachusetts Pension Reserves Investment Trust Fund 17.8% 3 Minnesota State Board of Investment 16.2% 4 Houston Firefighters Relief and Retirement Fund 15.8% 5 San Francisco Employees Retirement System 15.6% 6 Iowa Public Employees Retirement System 15.5% 7 Utah Retirement System 15.1% 8 New York State and Local Retirement System 14.9% 9 California State Teachers Retirement System 14.8% 10 Oregon Public Employees Retirement System Pennsylvania Public School Employees Retirement System 14.3% 14.3%
4 Top 10 pension funds by dollars invested in private equity Rank Public Pension Fund Private Equity Investment (Bil.) 1 California Public Employees Retirement System $32.3 2 California State Teachers Retirement System $21.9 3 Washington State Investment Board $16.2 4 Oregon Public Employees Retirement System $14.4 5 Teacher Retirement System of Texas $14.4 6 New York State and Local Retirement System $14.1 7 State of Wisconsin Investment Board $10.0 8 Pennsylvania Public School Employees Retirement System $9.2 9 Michigan Public School Employees Retirement System $8.4 10 Ohio Public Employees Retirement System $8.2
5 On a dollar-weighted basis, U.S. public pension funds invest 9.4% of their portfolio in private equity 6.7% Other 2.7% Cash/Short-Term Inv. 8.0% Real Estate 9.4% Private Equity 50.2% Public Equity 23.0% Fixed Income
6 The penetration rate of private equity among the largest U.S. public pension funds is high 89% 59 38 23 16 7 6 0% 0<5% 5%<10% 10%<15% 15%<20% 20%<30% Number of Pensions by PE Allocation
7 Private equity investments outperform other asset classes based on median 10-year annualized returns Pension Fund Investment Return by Asset Class Median 10-Yr. Annualized Return 14% 12% 12.3% 10% 8% 6% Total Fund Return 7.5% 7.9% 7.4% 4% 5.6% 2% 0% Fixed Income Public Equity Private Equity Real Estate
8 The 25th percentile private equity return exceeds the 75th percentile public equity return 10-Yr. Annualized Return 16% 75 th percentile 14% Median 12% Mean 25 th percentile 10% 2.9% pts. 8% 6% 4% Sample Size Total Fund Fixed Income Public Equity Private Equity Real Estate No. of Pensions 81 70 74 35 42 Investment (Bil.) $2,462 $570 $1,242 $237 $196
9 Over a ten year period, a $1 investment into private equity returns $3.2 Return from $1 investment $3.5 Profit Initial Investment $3.0 $2.5 $2.0 $2.2 $1.5 $1.1 $0.7 $1.1 $1.0 $1.0 $0.5 $0.0 Total Fund Fixed Income Public Equity Private Equity Real Estate
10 Notes on study The reporting date for data used in this study ranges from March 31, 2013 to June 30, 2014, with most dates as of June 30, 2013. When data as of June 30, 2013 were unavailable, information from the most recent available financial report at the time of analysis (September 30, 2013) was used. The breakdown of invested capital by pension funds is determined by summing the total dollars invested within each asset class for all 153 public pension funds and calculating the percentage allocation of each asset class. The analysis of pension fund investment returns is based on available 10-year return data as of June 30, 2013 for each asset class. Using June 30th returns provides the largest sample size for all asset classes. Pension funds typically report returns for private equity and other illiquid assets net of management fees and carry, while marketable securities can be reported net or gross of fees. The analysis of returns from a $1 investment by pension funds into each asset class is based on median 10- year annualized returns as of June 30, 2013 for each asset class. Returns from a $1 investment are calculated using the following formula, where x% represents the median 10-year annualized return for the specific asset class: $1 (1+x%)^10 Not all pension funds report 10-year returns or returns for each asset class. Asset classes may be defined slightly differently, depending on the pension fund.