Pensions are bracing for their private equity losses as officials predict grim results. And that’s not even accounting for the fact that valuations can be far worse than reported.
From the WSJ:
Andy Nick, a managing director at Jefferies’ private capital advisory arm, said private-equity managers tend to understate both gains and losses during individual reporting periods by factoring them over a longer period. He predicted that managers won’t price in the full extent of this year’s losses until December, when auditors review their accounting.
“You’ll have the quarterly marks but that’s as good as the paper it’s written on,” Mr. Nick said.
Private-equity investments have outperformed stocks over the very long term, according to a private-equity index maintained by the data analytics firm Burgiss that doesn’t include venture capital. For the three decades ended June 30, 2021, the Burgiss index yielded an annual return of close to 14%, about 3 percentage points more than the S&P 500.
However, the gap has all but disappeared as more investors have crowded into private equity. Over the 10 years ended June 30, 2021, the yield was the same as the S&P 500, 14.8%.
Your Survival Guy has been warning of the dangers of pension fund investments in private equity. Read here:
- Can Private Equity Really Save Sinking Pension Funds?
- How Long Will Your Pension Fund Last?
- RISKY BUSINESS: Pension Managers Risking Clients’ Money to Plug Deficits
- Pension Funds in Blue States are Playing You
Private equity investments were supposed to “save” pensions, and now they’re poised to harm them instead. The problem is the politicized goals many states have regarding pension funds. First of all, no politician wants to tell constituents they have to pay more to ensure the promises the state has made. Secondly, no pension fund manager wants to tell any politician (their boss) that they need more money from taxpayers to ensure future payouts. Instead, managers convince politicians to allow them to take Hail Mary passes by investing in private equity assets to try to meet their return assumptions. When private equity instead becomes a drag on pension portfolios, retirees and taxpayers better watch out, because politicians and pension fund managers won’t be making up the differences with their own money.
Action Line: You can’t always rely on pension funds. You need to save ’til it hurts, and invest that money for compounding. If you need help building a plan, click here to get in touch. I’m looking forward to talking to you. Before we talk, click here to sign up for my free monthly Survive & Thrive letter, and get to know me better.
E.J. Smith - Your Survival Guy
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