Private equity’s long-term returns have a demonstrated record of outperforming the stock market. While critics use cherry-picked data to make false claims about private equity, its returns generate alpha for pensions across the country. Pensions choose private equity for their strong returns and risk diversification.
- Private equity consistently generates stronger returns than public markets in the long-term – even in the face of financial crises and economic downturns.
- From 2001 to 2021, state pension funds’ private equity allocations yielded 60% greater returns than what would’ve been possible with public stocks – leading public pension fund managers across the United States to increase private equity allocations in the years to come.
For those who count on their public pensions for retirement, private equity provides an important investment avenue that generates strong returns and diversifies overall portfolio risk, even in the face of economic shocks like recessions and financial crises. Though some may be quick to parade short-term results as set-in-stone trends, the data – and public pension managers themselves – don’t lie: private equity is a winner for America’s pensioners.
Private equity returns consistently outperform public markets in the long run
Long-term investments are inherently a waiting game – and with private equity, it certainly pays off for public pensions.
Research from Cliffwater, an alternative investment advisor, shows that, from 2000 to 2021, state pension funds’ private equity allocations yielded returns about 60% greater than what would’ve come from public stocks. Separate research from Cambridge Associates yields even stronger findings: over a 25-year period ending Q4 2022, private equity returns exceeded that of publicly traded counterparts by over 63%.
Take a look at how $100 invested in U.S. private equity compares to $100 invested in U.S. public markets over time:
While it’s easy to cherry pick short-term data, private equity’s consistently strong long-term performance is actively securing retirements for public-sector pensioners.
Learn more: Public Servants Count on Private Equity Returns for Retirement Security
Public pensions continue to rely on private equity for robust returns, benefitting retirees of today and tomorrow
Private equity investments are critical for not only today’s pensioners but also current workers who will retire years from now. Pension funds’ unique, long-term investment horizon begets more complex investment strategies that often prioritize diversification into a wider selection of asset classes – and private equity is a preferred option.
A report from Preqin, a leading financial data provider, showed that 95% of investors expect to make private equity allocations in 2023. Looking even longer term, 94% of investors expect to maintain or increase their pace of investments into the asset class – signaling strong support for private equity’s returns-generating potential.
Hear from pension fund managers around the country about why private equity is the right fit for their fund and beneficiaries over the long term:
“Our private equity portfolio has consistently generated the highest return in the SERS portfolio over rolling 10-year periods for many years and has contributed to the long-term sustainability of the pension plan. The strategy pursued by staff in target markets has been successful and has also resulted in lower fees.”
– Farouki Majeed, Chief Information Officer (CIO), Ohio School Employees Retirement System (Ohio SERS)
“A long-term commitment and investment in the private equity asset class has enhanced our ability to deliver on our mission of providing retirement security to Missouri’s educators and education employees after a full career of service. Private equity, within the Missouri PSRS/PEERS investment portfolio, has produced net of-fees returns significantly greater than the returns achievable in publicly traded stocks over all time periods.”
– Craig Husting, CIO, Public School & Education Employee Retirement Systems of Missouri
“Since our alternative program was started in private equity, real estate, hedge funds, and real assets, through the crash and the comeback in markets, private equity has been the top performer with 30 percent total return, including the financial crisis.”
– Bob Grady, Former Chairman, New Jersey State Investment Council
“We are very confident in the prospects for private equity investments in our long-term investment mix. Private equity opportunities far exceed those available in stock market investing for the foreseeable future and are a welcome addition to our portfolio diversification effort.”
– Brett Besselman, Chairman of the Board of Trustees, Houston Firefighters’ Relief and Retirement Fund
Learn more: Pension Fund Managers Know They Can Rely on Private Equity for Strong and Reliable Returns
The bottom line
Pension funds prioritize a long-term approach rather than focusing on short-term gains – making private equity a perfect fit. No other investment strategy can compete with private equity over a long-term horizon, especially in public markets.
