Key Takeaways
- • Top-quartile private equity funds delivered average annual returns of 39% over the past 25 years, substantially outperforming publicly-traded stocks, according to the American Investment Council's response to GAO scrutiny.
- • Congressional concerns about pension fund allocations to private equity and hedge funds, prompted by a Government Accountability Office report, lack empirical support within the GAO's own study findings, according to the AIC.
- • Pension plan allocations to private equity have increased modestly by 9 percentage points since 2001, with larger pension plans showing greater concentration in alternative investments than smaller funds.
- • The American Investment Council acknowledges that pension fund managers require enhanced education and risk awareness for alternative investments, particularly managers overseeing smaller pension plans, and offers industry collaboration with Congress and the Department of Labor.
- • Private equity has functioned as an established asset class for pension fund portfolios for nearly three decades, warranting diversified allocation strategy rather than concentrated exposure to any single asset class.
Summary
The American Investment Council released a statement on September 15, 2008, responding to congressional concerns raised following a Government Accountability Office report examining pension fund investments in private equity and hedge funds. The AIC contended that while congressional anxiety about alternative assets was "understandable and reasonable," the GAO report itself did not substantiate the underlying concerns about private equity as an investment vehicle for defined benefit pension plans.
The AIC highlighted the historical performance of the asset class, noting that top-quartile private equity funds achieved average annual returns of 39% over a 25-year period—a return profile substantially exceeding publicly-traded equity markets. This performance record underscores private equity's three-decade track record as a legitimate institutional investment option. The GAO report identified that pension plan exposure to private equity has expanded by approximately 9 percentage points since 2001, with larger pension plans demonstrating greater participation in alternative investments relative to smaller plan sponsors.
Acknowledging legitimate governance concerns, the AIC aligned with both the GAO and congressional members that pension fund managers must maintain comprehensive understanding of risks and opportunities across all investment categories, including public equities, fixed income instruments, and alternative assets. The organization emphasized that prudent asset allocation requires avoiding over-concentration in any single investment class. The AIC expressed readiness to collaborate with Congress and the Department of Labor to develop educational frameworks addressing the specific needs of smaller pension fund managers navigating alternative investment due diligence and risk management protocols.
The statement reflects the industry's recognition that institutional adoption of private equity, while historically successful, requires appropriate governance infrastructure and managerial expertise—particularly as smaller pension plans expand allocations to less transparent and more complex investment vehicles.
The AIC highlighted the historical performance of the asset class, noting that top-quartile private equity funds achieved average annual returns of 39% over a 25-year period—a return profile substantially exceeding publicly-traded equity markets. This performance record underscores private equity's three-decade track record as a legitimate institutional investment option. The GAO report identified that pension plan exposure to private equity has expanded by approximately 9 percentage points since 2001, with larger pension plans demonstrating greater participation in alternative investments relative to smaller plan sponsors.
Acknowledging legitimate governance concerns, the AIC aligned with both the GAO and congressional members that pension fund managers must maintain comprehensive understanding of risks and opportunities across all investment categories, including public equities, fixed income instruments, and alternative assets. The organization emphasized that prudent asset allocation requires avoiding over-concentration in any single investment class. The AIC expressed readiness to collaborate with Congress and the Department of Labor to develop educational frameworks addressing the specific needs of smaller pension fund managers navigating alternative investment due diligence and risk management protocols.
The statement reflects the industry's recognition that institutional adoption of private equity, while historically successful, requires appropriate governance infrastructure and managerial expertise—particularly as smaller pension plans expand allocations to less transparent and more complex investment vehicles.
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