Key Takeaways
- • Global pension funds collectively hold a $4 million net underallocation to private equity as of March 28, 2023, with median actual allocation of $276 million against a median target of $280 million across 365 funds analyzed by S&P Global Market Intelligence and Preqin.
- • CalPERS exhibits the largest individual underallocation at $11.34 billion below target, driven by a recent increase in its private equity allocation target from 8% to 13% for the 2022-23 fiscal year, despite private equity being its highest-performing asset class.
- • California State Teachers' Retirement System and CalPERS maintain the two largest actual allocations to private equity at $46.73 billion and $46.26 billion respectively, underscoring the concentration of institutional capital among large West Coast pension systems.
- • The aggregate underallocation reflects a sharp decline in private equity and venture capital fund launches in the year to April 3, 2023, signaling a contraction in institutional capital deployment amid challenging market conditions.
Summary
Global pension funds ended the first quarter of 2023 modestly underallocated to private equity relative to their stated targets, according to data from S&P Global Market Intelligence and Preqin. Among 365 global pension funds analyzed, the median target allocation stood at $280 million while actual allocations averaged $276 million, resulting in an aggregate $4 million net underallocation as of March 28, 2023. This modest shortfall reflects the difficult investment environment facing pension allocators in early 2023 and signals constrained institutional capital deployment to the asset class.
The underallocation is not uniformly distributed across pension systems. California Public Employees' Retirement System (CalPERS) recorded the largest single underallocation, falling $11.34 billion short of its private equity target. This substantial gap is attributable to CalPERS' recent decision to increase its private equity allocation target from 8% to 13% beginning with the 2022-23 fiscal year. According to CalPERS' January 2023 statement, private equity ranks as the highest-performing asset class within its portfolio, justifying the increased allocation mandate. However, the gap between elevated targets and actual deployment reflects the practical difficulty of rapidly scaling capital commitments in a constrained fundraising environment.
Two large California pension funds dominate the institutional capital landscape for private equity. California State Teachers' Retirement System and CalPERS held the largest actual allocations among all funds studied, at $46.73 billion and $46.26 billion respectively. In contrast, the Burlington Employees' Retirement System maintained the lowest allocation at $1 million, illustrating the significant disparity in private equity exposure across pension systems based on asset base and strategic allocation decisions.
The aggregate underallocation reflects broader market headwinds affecting capital formation. A sharp decline in private equity and venture capital fund launches in the year to April 3, 2023, contributed to the aggregate underallocation, indicating that fundraising constraints limited pension funds' ability to deploy capital even where targets had been established.
The underallocation is not uniformly distributed across pension systems. California Public Employees' Retirement System (CalPERS) recorded the largest single underallocation, falling $11.34 billion short of its private equity target. This substantial gap is attributable to CalPERS' recent decision to increase its private equity allocation target from 8% to 13% beginning with the 2022-23 fiscal year. According to CalPERS' January 2023 statement, private equity ranks as the highest-performing asset class within its portfolio, justifying the increased allocation mandate. However, the gap between elevated targets and actual deployment reflects the practical difficulty of rapidly scaling capital commitments in a constrained fundraising environment.
Two large California pension funds dominate the institutional capital landscape for private equity. California State Teachers' Retirement System and CalPERS held the largest actual allocations among all funds studied, at $46.73 billion and $46.26 billion respectively. In contrast, the Burlington Employees' Retirement System maintained the lowest allocation at $1 million, illustrating the significant disparity in private equity exposure across pension systems based on asset base and strategic allocation decisions.
The aggregate underallocation reflects broader market headwinds affecting capital formation. A sharp decline in private equity and venture capital fund launches in the year to April 3, 2023, contributed to the aggregate underallocation, indicating that fundraising constraints limited pension funds' ability to deploy capital even where targets had been established.
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