The World’s Dominant Investors in Private Equity

Sovereign wealth funds and public pension plans are absorbing massive amounts of private equity assets.

Illustration by II

Illustration by II

Sovereign wealth managers and public pensions have taken on an outsized role in funding private equity and other alternative assets, with their appetite for risk growing significantly in the past 12 years, according to research from the University of Oklahoma and Global SWF.

State-owned investors, including sovereign wealth and public pension funds, have increased their private market allocations to an average 22 percent this year, up from 10 percent in 2008, University of Oklahoma finance professor William Megginson, Global SWF managing director Diego Lopez, and OU business school student Asif Malik wrote in a paper last month. “The largest proportionate changes were observed for private equity, which more than tripled between 2008 and 2020” for public pension and sovereign wealth funds, the researchers said.

These funds, with $27 trillion of assets under management globally, have become “the largest and most important private equity investors,” according to Megginson, Lopez and Malik. Their research found seven U.S. pensions — led by the California Public Employees’ Retirement System, Washington State Investment Board, and the Teacher Retirement System of Texas — each have more than $15 billion in private equity assets.

That places them among the top 40 institutional investors in the asset class globally, a ranking that is topped by sovereign wealth funds, according to the paper. Public pensions and wealth funds are “dominant private equity investors, both as limited partners and as co-investors,” the authors said.

In the U.S., seven public pension funds appear in the top ranking. Beyond CalPERS, WSIB, and Texas TRS, they include the California State Teachers’ Retirement System, New York State Common Retirement Fund, Oregon Public Employee Retirement Fund, and the State Board of Administration of Florida.


While sovereign wealth funds still “overwhelmingly favor” investing in developed capital markets, “the targets of their investments have shifted away from listed stocks and bonds towards real estate, alternative assets and, especially, private equity,” the researchers said. These massive funds dwarf the largest U.S. pensions as private equity investors.

State-owned investors are the third biggest group of asset owners globally after insurance companies and private pension funds, according to the paper. Almost half of public pension assets globally are controlled by 87 funds in the U.S., the researchers said.

“American state and local governments were among the first governments anywhere to set up institutional funds to invest the pension contributions of government employees,” according to the paper. “Based in democratic societies, they are subject to electoral oversight and tend to be quite transparent in terms of their investment policies and allocations,” the authors said.

By contrast, authoritarian governments control the vast majority of sovereign wealth funds, with a small group of officials at least strongly influencing allocation policies and payouts, according to the researchers. They described wealth funds as “rarities in the investing world in being almost totally unconstrained in their investment policies, in being required to disclose little or no information publicly, and in facing little or no pressure to boost short-term returns.”

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State-owned investors represent about 80 percent of the $1.86 trillion invested by the top 40 institutional investors in private equity. Nineteen of them are sovereign wealth funds, with 12 allocating at least 15 percent of their assets to private equity, according to the paper.

Seven public pensions on the list have at least a 15 percent exposure to private equity, including WSIB and Texas TRS in the U.S. and the Canada Pension Plan Investment Board. CPPIB is the biggest private equity investor among public pension funds globally at $77 billion, the paper shows.

Only five insurance companies made the top 40 biggest institutional investors in private equity as of September, according to the research. The top two insurers allocated to the industry are Germany’s Allianz with about $139 billion in private equity assets and PGIM in the U.S. with about $86.5 billion.

While those allocations are enormous, the ranking shows “striking domination” overall by wealth and public pension funds, the authors said.