The saying “the more things change, the more they stay the same” hits the mark as pension allocators continue to put money to work in an environment where they are dealing with the same headlines today as they were at the end of June: FED, inflation, market volatility, and bond prices falling with yields increasing.
Higher current yields continued to help funding status via the discount rate, increasing the Milliman funded index to 106% versus the 104% level they saw in July and making up for small loss in asset values. It is important to note this is the longest stretch we have seen of positive funding status since the onset of the GFC in 2008 and illustrates the impact the interest rate cycles can on funding levels and how pensions allocate to asset classes in general.
The total amount of funds allocated by pension funds in private credit, private real estate, and private equity during July and August was $27.7 billion. This was 25% higher than the run rate we had seen so far during the year and defied the typical slowdown usually seen during the summer months.
Some stats during this reporting period:
- Total of 72 entities or pension funds were allocated fund
- 230 individual investment strategies were chosen
- 188 separate managers during the period had wins
- Over 38 investment sub-asset classes were allocated funds
The trends which caught our eye:
- Private equity middle market buyout continued to be the largest allocation of choice- $3.6 B being committed
- Still no major increase in core fixed income allocations, despite higher bond yields, income seekers continued to allocate to real estate, but have pulled back in credit sensitive areas such as direct lending
- Infrastructure funds continue to move up in commitments made coming in in 3rd/4th each month in 2022.
Allocators of size were:
- NY State Common fund placed $5.98 billion among 20 strategies with the largest allocations made in core real estate, ESG global public equities managed by Pictet and health-care bent private equity
- CPP Investments (Canadian Pension Plan) put $2.28 billion across 11 strategies focused in private equity and real estate
- Virginia Retirement System invested $1.85 billion across 12 various strategies focused in opportunistic real estate and buyout focused PE
The strategies the won the largest commitments were:
- Blackstone who captured $2.5 billion in their Real Estate Partners X fund
- EQT who won$1.9 billion split even between their EQT X PE buyout fund and EQT Exeter Industrial Value Fund
- Apax with in their middle market buyout Apax XI fund with $650 million allocated
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