PLANSPONSOR - October/November 2018 - 64
DB FOCUS
Private Market Investing
P
rivate equity does not outperform
its public market counterparts in
every period, but the difference over
investments are part of the competitive
advantage they have in the marketplace. "
How do investments in private
time has been significant: For the 15 years
ending this past March, for instance, private
equity outpaced large-cap stocks by
2.88% percentage points, and small caps
by more than 4 points, according to consultants
Cambridge Associates, a firm of
private market specialists.
When plans select the best private
equity managers, returns can be even
better, says Brian McDonnell, head of
Cambridge Associates' pension practice,
in Boston. " We have seen consistently,
over time, that a well-implemented private
equity program can generate 300 to 400
basis points [bps] of premium over the
public markets. For defined benefit [DB]
plans that are open and accruing, private
markets manage to defy gravity? For
private equity, the traditional explanation
has been the tendency for small companies
to outperform the broad market, but, in a
2014 paper, financial researchers William
Kinlaw and Jason Mao of State Street Global
Advisors in Boston, and Mark Kritzman of
the Sloan School at Massachusetts Institute
of Technology (MIT), found instead that
a main driver of outperformance was
private equity managers' choice of investment
sectors. " The weights of sectors in
the S&P [Standard & Poors] 500 and the
private equity universe are quite different,
and the private equity sectors vary quite
a bit as they go in and out of favor, " says
Kinlaw about the findings.
64 PLANSPONSOR.com October-November 2018
Art by Julia Vohl
The programs can be hard to handle without specialized knowledge
The team also detected substantial
excess return, deemed to be made up
of alpha accruing from private equity
managers' astute selection of companies,
as well as a premium for illiquidity. Kinlaw
explains concerning illiquidity: " Part of
managers' outperformance comes from
their capital being locked up, enabling
them to take risks that public managers
would find hard to stick to, as investors,
nervous about their strategies, could pull
out at any time. "
In the case of private debt, postfinancial-crisis
regulation drove banks
out of many lending businesses, says
Gregg Disdale, global head of alternative
credit for Willis Towers Watson, in
that consulting firm's London offices.
" That has created pockets of opportunity
for private fund managers to exploit in
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PLANSPONSOR - October/November 2018
Table of Contents for the Digital Edition of PLANSPONSOR - October/November 2018
Looking Closer
2018 DC Survey: Plan Benchmarking
Operational Loan Failures
Looking Beyond Performance
Staying Ahead of Inflation
Private Market Investing
Income Disruptions
Easy Access
PLANSPONSOR - October/November 2018 - Easy Access
PLANSPONSOR - October/November 2018 - FC1
PLANSPONSOR - October/November 2018 - FC2
PLANSPONSOR - October/November 2018 - C2
PLANSPONSOR - October/November 2018 - 1
PLANSPONSOR - October/November 2018 - 2
PLANSPONSOR - October/November 2018 - 3
PLANSPONSOR - October/November 2018 - 4
PLANSPONSOR - October/November 2018 - 5
PLANSPONSOR - October/November 2018 - 6
PLANSPONSOR - October/November 2018 - 7
PLANSPONSOR - October/November 2018 - 8
PLANSPONSOR - October/November 2018 - 9
PLANSPONSOR - October/November 2018 - 10
PLANSPONSOR - October/November 2018 - 11
PLANSPONSOR - October/November 2018 - 12
PLANSPONSOR - October/November 2018 - 13
PLANSPONSOR - October/November 2018 - 14
PLANSPONSOR - October/November 2018 - 15
PLANSPONSOR - October/November 2018 - 16
PLANSPONSOR - October/November 2018 - 17
PLANSPONSOR - October/November 2018 - 18
PLANSPONSOR - October/November 2018 - 19
PLANSPONSOR - October/November 2018 - 20
PLANSPONSOR - October/November 2018 - 21
PLANSPONSOR - October/November 2018 - 22
PLANSPONSOR - October/November 2018 - 23
PLANSPONSOR - October/November 2018 - 24
PLANSPONSOR - October/November 2018 - 25
PLANSPONSOR - October/November 2018 - 26
PLANSPONSOR - October/November 2018 - 27
PLANSPONSOR - October/November 2018 - 28
PLANSPONSOR - October/November 2018 - 29
PLANSPONSOR - October/November 2018 - 30
PLANSPONSOR - October/November 2018 - 31
PLANSPONSOR - October/November 2018 - 32
PLANSPONSOR - October/November 2018 - 33
PLANSPONSOR - October/November 2018 - Looking Closer
PLANSPONSOR - October/November 2018 - 35
PLANSPONSOR - October/November 2018 - 36
PLANSPONSOR - October/November 2018 - 37
PLANSPONSOR - October/November 2018 - 38
PLANSPONSOR - October/November 2018 - 39
PLANSPONSOR - October/November 2018 - 2018 DC Survey: Plan Benchmarking
PLANSPONSOR - October/November 2018 - 41
PLANSPONSOR - October/November 2018 - 42
PLANSPONSOR - October/November 2018 - 43
PLANSPONSOR - October/November 2018 - 44
PLANSPONSOR - October/November 2018 - 45
PLANSPONSOR - October/November 2018 - 46
PLANSPONSOR - October/November 2018 - 47
PLANSPONSOR - October/November 2018 - 48
PLANSPONSOR - October/November 2018 - 49
PLANSPONSOR - October/November 2018 - 50
PLANSPONSOR - October/November 2018 - 51
PLANSPONSOR - October/November 2018 - 52
PLANSPONSOR - October/November 2018 - 53
PLANSPONSOR - October/November 2018 - Operational Loan Failures
PLANSPONSOR - October/November 2018 - 55
PLANSPONSOR - October/November 2018 - 56
PLANSPONSOR - October/November 2018 - 57
PLANSPONSOR - October/November 2018 - Looking Beyond Performance
PLANSPONSOR - October/November 2018 - 59
PLANSPONSOR - October/November 2018 - 60
PLANSPONSOR - October/November 2018 - 61
PLANSPONSOR - October/November 2018 - Staying Ahead of Inflation
PLANSPONSOR - October/November 2018 - 63
PLANSPONSOR - October/November 2018 - Private Market Investing
PLANSPONSOR - October/November 2018 - 65
PLANSPONSOR - October/November 2018 - Income Disruptions
PLANSPONSOR - October/November 2018 - 67
PLANSPONSOR - October/November 2018 - 68
PLANSPONSOR - October/November 2018 - 69
PLANSPONSOR - October/November 2018 - 70
PLANSPONSOR - October/November 2018 - 71
PLANSPONSOR - October/November 2018 - 72
PLANSPONSOR - October/November 2018 - C3
PLANSPONSOR - October/November 2018 - C4
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