For public pensions, like the WRS, exposure to private equity investments is part of a well-diversified asset allocation.
Diversification spreads risk across various assets, thereby reducing the impact of any single underperforming investment.
Private equity involves investing in private companies or taking public companies private. Private equity firms raise capital from institutional investors, like SWIB, to form private equity funds. These funds are, then, invested in existing companies or start-ups.
Approximately 20% of the Core Trust Fund’s assets, or around $25 billion, is invested in private equity/debt. SWIB hires an asset allocation consultant who works with staff to recommend a private equity asset allocation to SWIB’s Board of Trustees, which approves target allocations annually.
Higher Return Potential
Private equity has the potential for higher returns than traditional asset classes over the long term.
For SWIB, private equity/debt has been the strongest performing asset class over the most recent 5-, and 10-year periods (15% and 13%, respectively). That compares favorably to public equity, which returned 12% and 10% over those same periods.
SWIB’s private equity allocation has outperformed its benchmarks over all time periods, demonstrating the skill SWIB staff has in selecting high-performing fund managers.
“We invest in private equity as part of a long-term asset allocation strategy, which is designed to deliver consistent performance under a wide range of economic conditions,” said Anne-Marie Fink, SWIB’s Private Markets & Funds Alpha Chief Investment Officer.
“We expect private equity will continue to outperform public equity over the next 10 years,” added Fink.
Exclusive Opportunities
Private markets, including private equity, are becoming an increasingly large part of the investable market. More than 85% of U.S. companies with revenues of $100 million or more are privately held.
Investors not participating in this asset class are missing out on a significant portion of the market and, thereby, concentrating their risk in other asset classes, typically public equities.