Private equity and venture capital trade association Invest Europe has published a guide for pension funds on investing in the sectors.
The association writes that The Guide to Private Equity and Venture Capital for Pension Funds contains practical information on why to invest and how to do so, plus an overview of the benefits and risks of gaining an exposure to private equity and venture capital. It is aimed at helping pension funds with limited experience of the asset class achieve an understanding of its unique features.
“Pension funds considering investing in private equity and venture capital can find it hard to locate simple guidance on matters such as how to build a portfolio of investments, measure performance and manage risk,” says Michael Collins, the new Chief Executive of Invest Europe. “We’ve produced this guide following research undertaken by Greenwich Associates on our behalf in 2014, which showed that while a third of pension funds were seeking to increase their allocations to private equity over the next few years, the information sources available to them were quite limited.”
Drawing on the experience of long-standing investors in the asset class, such as Ilmarinen Mutual Pension Insurance Company, APG Asset Management, SPF Beheer and Stichting Pensioenfonds TNO, the publication shows, via case studies, how pension funds can manage their portfolios and exposure to private equity and venture capital. It also sets out the different points of access available to investors and outlines the areas pension funds need to consider, such as how to select managers and gain adequate portfolio diversification.
Acccording to Invest Europe data, pension funds are an important source of capital for Europe’s private equity and venture capital funds, accounting for almost a third of funds raised over the last three years. The most commonly-cited reason for pension funds to invest in the asset class was returns, according to the Greenwich Associates research, with the largest proportion expecting an outperformance of between 3 per cent and 6 per cent over public market returns.
“Many studies suggest that institutional investors – including pension funds – are increasingly turning to alternative investments, such as private equity and venture capital,” says Iain Leigh, Managing Director, Global Private Equity at APG Asset Management. “They are doing so to generate returns in a persistently low interest rate environment but also because the long-term nature of the asset class offers a good match for long-term liabilities, while providing diversification benefits. Yet many pension funds find it challenging to source information about private equity and venture capital. This new guide aims to address this issue.”
The association writes that European private equity and venture capital are an attractive investment choice for investors. Over the last three years, fundraising in the asset class has increased by 70 per cent, compared with 2010-2012, according to Invest Europe figures, with EUR48 billion raised in 2015 alone.
“Delivering straightforward, useful information about private equity and venture capital is at the heart of Invest Europe’s mission, so I am pleased to launch it on my first day as CEO,” adds Collins. “Invest Europe already represents over 100 investors in private equity and venture capital funds. Hopefully this guide will help more pension funds to join them and deliver the benefits of strong returns and portfolio diversification to the pensioners they serve.”