mast image

Special Report

Impact investing

Sections

Pension funds losers in private equity - Citigroup

GLOBAL - Pension funds are the ultimate losers in the shift from public to private equity, according to Citigroup.

With schemes abandoning public equity in droves, the bank argues, the higher fees of private equity will "ultimately be paid out of hard-earned pensions and savings".

The bank's equity research team said in a note that applying private equity techniques to public equities generates higher returns than the best buyout funds a report by the Citigroup investment research team shows.

It states that in the expensive shift "the loser will be the pension fund".

"Some pension funds, driven by the new LDI religion have sold out of public equities completely," the authors of the report state. "If the equity weighting is halved over the next five years then that suggests £247bn (€365.4bn) of UK pension fund capital looking for a home.

Ironically, the continued strong performance of the listed equity markets will increase the amount needed to be sold as pension funds fight to get their equity weightings down.

In their research the analysts applied a private equity strategy and similar leverage to mid-cap stocks generating higher returns than the best buyout funds.

The applied strategy showed a 38.4% annual return over the last 10 years for leveraged Pan-European mid cap stocks compared to 14.3% annual return for buyout funds.

As advantages of private equity the study names "better management incentivisation, as a result of control, tax benefits and leverage".

However, the authors state that the high fees "should call into question the whole expensive shift from public to private equity ownership".

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

Begin Your Search Here
<