Ortec Finance: Pension funds are split on primary benefit of private assets

Ortec Finance: Pension funds are split on primary benefit of private assets

23 januari 2025

Pensioenfondsen
Pensioen sparen (pixabay - izhar-ahamed).jpg

In recent decades, investors have turned to private asset classes, such as private equity, for various benefits including increased return and diversification.

Now looking forward, almost three in four (74%) pension fund executives believe distributions for private equity will increase over the next three years, and almost nine in ten (89%) say this will affect their pacing strategy, according to a new global survey from Ortec Finance, a leading global provider of risk and return management solutions for pension funds (please see the attached press release). The survey targeted senior pension fund executives whose funds collectively manage $1.451 trillion in assets.

Distributions for private equity – the means by which private equity funds return capital to investors, which are paid when fund managers realise their investments in underlying companies or assets – have been low over the past years. But out of the 74% who expect these to be higher over the next three years, nearly half (46%) say they will be much higher with 28% saying they will be slightly higher. Just 8% expect them to be lower and 18% expect they will be unchanged. This suggests pension executives expect to realise the return benefits of their private asset investments.

Along with understanding distributions, pension executives have to strategise how much to invest into private equity and other private assets. Almost nine in ten (89%) say their views on distributions have an impact on their pacing strategy, which is the consistent approach to committing capital to private investments with the goal of reaching a long-term target allocation. Of these, around a third (31%) say their views of distributions will have a considerable impact, with 58% saying it will have a slight impact. Just over one in ten (11%) say it won’t have an impact on their pacing strategy.

For pensions, investing into private assets creates liquidity constraints for their funds. However, nearly half (46%) of pension executives said the most important reason for investing in private assets was their returns and illiquidity premiums, the Ortec Finance survey found. But in addition, around two out of five (37%) identified diversification as the most important reason for investing in private assets while 17% pointed to inflation protection.

Despite the benefits, the pension executives surveyed see different levels of optimal exposure. The largest group of executives, over half (52%) of those surveyed, deem a maximum allocation to private assets of between 20% and 30% reasonable for the fund they manage. For over a third (36%) of those surveyed this was between 30% and 40%, and for over a tenth (12%) this was as much as between 40% and 50%. Under a tenth (8%) of pension executives surveyed said that their fund’s maximum allocation to private assets is between 10% and 20%.

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