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“Private equity plays a significant role in securing the retirements of millions of teachers, fire fighters and police officers across the United States. In turn, pension investments in private equity provide the needed capital to strengthen and grow companies”, said PEGCC President and CEO Steve Judge. “This whitepaper demonstrates how private equity and pension funds are inextricably linked to each other’s success.”
“Pension fund commitments make up 43 per cent of overall private equity investment and are essential to the private equity industry, just as private equity’s superior returns are vital to the financial health of pension funds”, said Bronwyn Bailey, PEGCC Vice President of Research. “Investments in private equity are the only asset class to produce annualised 10-year returns over the average pension target return of 8 per cent. Without private equity returns, public pension plans across the country would incur greater unfunded liability, possibly resulting in higher pension contributions by employees and a spike in taxes paid by local residents”, Bailey concluded.
Over the last 10 years, public pension funds saw their portfolio performance dip well below their targets, i.e. the investment return necessary to fund the retirements of the teachers, police, fire fighters and other employees who rely on their pensions for financial security during their advanced years. If investment returns do not provide enough revenue to finance liabilities, the shortfall will be paid by pension employees or their employers, i.e. state and local governments that are funded by taxpayers.