Public pension plans continued to build up their private equity portfolios last year, new data from eVestment show.
Private equity mandates accounted for 27 percent of new allocations made by U.S. and U.K. pension funds in 2018, an uptick from 25 percent last year, according to the institutional investment analytics firm. On an absolute basis, mandates awarded to private equity firms increased dramatically year-over-year, from a total of 580 commitments in 2017 to 954 allocations last year.
Overall, eVestment tracked 3,574 new allocations in 2018, a sharp increase from 2,357 mandate awards last year.
The surge in allocations led to an increase in mandate awards to all types of managers on an absolute basis, even as the proportion of new allocations to each asset class remained relatively unchanged. Investments in direct real estate and fixed income grew slightly on a relative basis – each increasing from 13 percent of all new allocations to 14 percent – while the percentage of mandates awarded to public equity and private debt managers each fell by one percentage point to 20 percent and 8 percent, respectively. The proportion of mandates awarded to real assets managers, meanwhile, remained fixed at 8 percent.
The biggest losers were hedge funds and multi-asset managers, who saw their portion of the mandates awarded by public pensions fall from 11 percent to 9 percent – even as the total number improved from 248 commitments to 337 new allocations.
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The allocation data recorded by eVestment reflect the ongoing appetite for private markets – and lost faith in hedge funds – demonstrated by public pensions and other institutional allocators over the last few years. Last year, private capital managers raised $757 billion across strategies such as private equity and real estate, following a record $925 billion fundraise in 2017, according to Preqin data.
It’s not all good news for private capital managers: According to eVestment, the continued flow of public pension dollars into private assets is putting pressure on managers to provide a higher level of transparency than they were previously used to.
“Public pensions have a variety of stakeholders to whom they are accountable when making investments,” said John Molesphini, eVestment’s global director of insights. “As a result, private markets and other alternative managers looking to win public plan assets increasingly need to comply with transparency and disclosure standards they may be less familiar with to win these mandates.”
As of this month, there were 5,147 private capital funds in market seeking to raise over $1.6 trillion from investors, according to Preqin.