Key Takeaways
- • Private equity delivered the highest median 10-year annualized returns among all asset classes for U.S. public pension funds, yielding 11.4 percent net of fees and outperforming public equity, fixed income, and real estate investments.
- • The Teacher Retirement System of Texas topped the performance rankings with a 10-year annualized private equity return of 15.40 percent net of fees, followed by San Francisco Employees' Retirement System (15.21 percent) and Iowa Public Employees' Retirement System (14.95 percent).
- • The American Investment Council's 2016 Public Pension Fund Study analyzed private equity investments across 155 U.S. public pension funds, identifying the top performers by both returns and investment volume.
- • Public pension funds collectively represent approximately 35 percent of all capital deployed in the private equity asset class, making them the largest investor base for PE firms.
- • The study demonstrates private equity's critical role in securing retirement benefits for teachers, emergency responders, and public servants across the United States.
Summary
Private equity continues to outperform all other major asset classes for U.S. public pension fund investors, according to the American Investment Council's 2016 annual Public Pension Fund Study, conducted in partnership with private market technology firm Bison. The research examined private equity allocations and performance across 155 public pension funds, providing a comprehensive view of how alternative investments have shaped institutional pension portfolios.
The study's most striking finding is private equity's sustained performance advantage. On a median 10-year annualized basis, private equity investments returned 11.4 percent net of fees—meaningfully outpacing public equities, fixed income securities, and real estate. This performance differential underscores why large institutional pension plans have progressively shifted capital toward alternative asset classes over the past decade.
Performance rankings reveal significant variation in private equity execution across pension fund managers. The Teacher Retirement System of Texas achieved the highest 10-year annualized private equity return at 15.40 percent net of fees, establishing a benchmark for institutional private equity investing. The San Francisco Employees' Retirement System followed with 15.21 percent returns, while the Iowa Public Employees' Retirement System ranked third at 14.95 percent net of fees. These results highlight that superior selection and monitoring capabilities can generate material performance premiums within the asset class.
The research also identifies the top-performing pension funds by private equity investment volume, providing insight into which institutions are most active in deployment. The study's dual ranking—by both returns and by capital committed—illustrates the diversity of private equity strategies and fund sizes across the institutional investor base. Public pension funds collectively represent approximately 35 percent of all capital invested in private equity, establishing them as the dominant institutional investor class in the sector.
Mike Sommers, AIC President and CEO, emphasized the broader societal significance of these findings, noting that private equity returns directly support retirement security for teachers, emergency responders, and public servants nationwide. This framing underscores the fiduciary importance of asset class performance in pension fund management and the material impact investment returns have on public sector employee retirement outcomes.
The study's most striking finding is private equity's sustained performance advantage. On a median 10-year annualized basis, private equity investments returned 11.4 percent net of fees—meaningfully outpacing public equities, fixed income securities, and real estate. This performance differential underscores why large institutional pension plans have progressively shifted capital toward alternative asset classes over the past decade.
Performance rankings reveal significant variation in private equity execution across pension fund managers. The Teacher Retirement System of Texas achieved the highest 10-year annualized private equity return at 15.40 percent net of fees, establishing a benchmark for institutional private equity investing. The San Francisco Employees' Retirement System followed with 15.21 percent returns, while the Iowa Public Employees' Retirement System ranked third at 14.95 percent net of fees. These results highlight that superior selection and monitoring capabilities can generate material performance premiums within the asset class.
The research also identifies the top-performing pension funds by private equity investment volume, providing insight into which institutions are most active in deployment. The study's dual ranking—by both returns and by capital committed—illustrates the diversity of private equity strategies and fund sizes across the institutional investor base. Public pension funds collectively represent approximately 35 percent of all capital invested in private equity, establishing them as the dominant institutional investor class in the sector.
Mike Sommers, AIC President and CEO, emphasized the broader societal significance of these findings, noting that private equity returns directly support retirement security for teachers, emergency responders, and public servants nationwide. This framing underscores the fiduciary importance of asset class performance in pension fund management and the material impact investment returns have on public sector employee retirement outcomes.
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