“Horribly risky” public markets are reducing the relative risk of private equity holdings, the UK’s largest local authority fund has argued.
Neil Cooper, assistant executive director of investments at the Greater Manchester Pension Fund (GMPF), said many investors compared the risk posed by private equity with that of public market investments, but that the current state of the latter was “absolutely crazy”.
Speaking at a fringe event on private equity at the annual conference of the Pensions and Lifetime Savings Association, formerly known as the National Association of Pension Funds, Cooper said recent “flash crashes” made him question how public markets were being traded.
“If you say private equity is risky, that’s fine – it clearly is,” he said.
“But the ready comparison in public markets is actually getting riskier, so, on a relative basis, it’s getting less risky compared with the public market equivalent.”
He also spoke of the difficulty facing the GMPF in increasing exposure to the asset class, although he said the scheme was happy with its 5% strategic asset allocation.
“Even in the last two years, where we’ve quite materially increased our commitment rate, the cash has come back quicker than it’s been going out,” Cooper said.
“So that’s actually a trivial task to increase your exposure in an asset class, which is constantly recycling capital and sending it back.”
He said the main challenge facing the fund was the difficulty in getting “large sums to work in private equity”.
The GMPF, which last financial year achieved an investment return of 11.7%, has seen its assets increase to £17.6bn (€23.8bn), an increase of £4.3bn over the 12 months to March.