US Pension Funds' Private Equity Disaster: Lost on the Road to Alphaville
New research from Bloomberg makes clear the magnitude of the private equity losses suffered by US employee pension funds in the period 2000-2008.
Public and private employee pension funds contributed significantly to the over USD 1.2 trillion raised by buyout funds over this period. The California Public Employees' Retirement System (CALpers), the Washington State Investment Board and the Oregon Public Employees' Retirement Fund invested over USD 53.8 billion, but have recovered only just USD 22.1 billion - 41%. The ultimate fate of these investments over a longer time period hinges on the eventual returns on the companies snapped up by the funds in the peak boom years 2006-7 - and these companies are currently valued at a fraction of the prices paid. Some of the major buyout deals have already ended in bankruptcy with many more looming.
Bloomberg unsurprisingly that "Buyout managers, and some pension funds, downplay their cash returns so far." At present, the money remains locked into the funds, with stiff penalties for withdrawal and huge losses for investors seeking to sell their stakes on the secondary market.
CALpers, which this June actually increased its investment allotment to private equity, is the largest US pension investor in the buyout business, with the Washington and Oregon funds third and fourth, respectively, according to Bloomberg. The three funds collectively increased their private equity commitments from USD 3.1 billion in 2005 to 8 billion, and then more than doubled their commitments the following year to USD 18.7 billion.