PLANSPONSOR - October/November 2019 - 48
DB FOCUS
The Search for Basis Points
T
he funded status of defined benefit
(DB) plans has dropped sharply
since summer, with interest rates
at one of the lowest points in modern history.
DB plans need to find basis points
(bps) anywhere they can, and the private
markets for real estate, infrastructure,
equity and debt offer attractive options.
Whereas public market investors
tend to own small fractions of an enterprise,
private investment typically buys
the whole thing and puts it through some
sort of value-enhancing transformation in
the hope of realizing a much higher value.
Managers of private investment funds are
said to be " patient, " in that they can take
their time in buying cheaply and sell at
cyclical peaks. Recently, though, private
managers have been flooded with capital,
and observers are worried about its impact
on future returns.
have become enormous: Last year, their
assets under management (AUM) reached,
respectively, $2.6 trillion and $769 billion
globally, and $1.4 trillion and $480 billion
in North America, says consulting firm
McKinsey & Co.'s " Global Private Markets
Review for 2019. " Fundraising in the two
markets was down 14% and 11% that year,
to $279 billion in North America, but only
after setting records in 2016 and 2017.
By way of comparison, private real estate
in closed-end funds in North America is
valued at about $500 billion.
Lofty Returns Define
Private Equity
The enthusiasm for private equity is understandable:
Returns have outpaced those
of the public equity markets, even after
48 PLANSPONSOR.com October - November 2019 Art by Kiki Ljung
Growth in evergreen private equity vehicles, niche markets is expected
The markets for private equity and debt
eye-watering fees. Cambridge Associates,
investment consultants with a specialty in
private markets, reports that for the three
years ended this past March, private equity
funds returned 15.8% annually, beating
the Standard & Poor's (S&P) 500 by about
2 percentage points, and over 25 years
delivered 13.5%-about 4 points ahead. For
the 10 years ending then, however, private
equity could not beat the post-financial
crisis bull market and underperformed by
about 1 percentage point per year.
And those figures relate only the
median performance on about 2,000
private equity funds in the Cambridge
database. Performance among private
equity managers varies widely, and far
more so than in the private markets:
McKinsey & Co. reports that for the five
years ended 2018, the top performance
quartile of private equity managers
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PLANSPONSOR - October/November 2019
Table of Contents for the Digital Edition of PLANSPONSOR - October/November 2019
Investment-Driven
2019 DC Survey: Plan Benchmarking
Projecting Participant Outcomes
Just Around the Corner?
The Search for Basis Points
It Could Be Time to De-Clutter
PLANSPONSOR - October/November 2019 - C1
PLANSPONSOR - October/November 2019 - FC1
PLANSPONSOR - October/November 2019 - FC2
PLANSPONSOR - October/November 2019 - C2
PLANSPONSOR - October/November 2019 - 1
PLANSPONSOR - October/November 2019 - 2
PLANSPONSOR - October/November 2019 - 3
PLANSPONSOR - October/November 2019 - 4
PLANSPONSOR - October/November 2019 - 5
PLANSPONSOR - October/November 2019 - 6
PLANSPONSOR - October/November 2019 - 7
PLANSPONSOR - October/November 2019 - 8
PLANSPONSOR - October/November 2019 - 9
PLANSPONSOR - October/November 2019 - 10
PLANSPONSOR - October/November 2019 - 11
PLANSPONSOR - October/November 2019 - 12
PLANSPONSOR - October/November 2019 - 13
PLANSPONSOR - October/November 2019 - 14
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PLANSPONSOR - October/November 2019 - 18
PLANSPONSOR - October/November 2019 - 19
PLANSPONSOR - October/November 2019 - 20
PLANSPONSOR - October/November 2019 - 21
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PLANSPONSOR - October/November 2019 - 23
PLANSPONSOR - October/November 2019 - 24
PLANSPONSOR - October/November 2019 - 25
PLANSPONSOR - October/November 2019 - Investment-Driven
PLANSPONSOR - October/November 2019 - 27
PLANSPONSOR - October/November 2019 - 28
PLANSPONSOR - October/November 2019 - 29
PLANSPONSOR - October/November 2019 - 30
PLANSPONSOR - October/November 2019 - 31
PLANSPONSOR - October/November 2019 - 2019 DC Survey: Plan Benchmarking
PLANSPONSOR - October/November 2019 - 33
PLANSPONSOR - October/November 2019 - 34
PLANSPONSOR - October/November 2019 - 35
PLANSPONSOR - October/November 2019 - 36
PLANSPONSOR - October/November 2019 - 37
PLANSPONSOR - October/November 2019 - 38
PLANSPONSOR - October/November 2019 - 39
PLANSPONSOR - October/November 2019 - Projecting Participant Outcomes
PLANSPONSOR - October/November 2019 - 41
PLANSPONSOR - October/November 2019 - 42
PLANSPONSOR - October/November 2019 - 43
PLANSPONSOR - October/November 2019 - Just Around the Corner?
PLANSPONSOR - October/November 2019 - 45
PLANSPONSOR - October/November 2019 - 46
PLANSPONSOR - October/November 2019 - 47
PLANSPONSOR - October/November 2019 - The Search for Basis Points
PLANSPONSOR - October/November 2019 - 49
PLANSPONSOR - October/November 2019 - It Could Be Time to De-Clutter
PLANSPONSOR - October/November 2019 - 51
PLANSPONSOR - October/November 2019 - 52
PLANSPONSOR - October/November 2019 - 53
PLANSPONSOR - October/November 2019 - 54
PLANSPONSOR - October/November 2019 - 55
PLANSPONSOR - October/November 2019 - 56
PLANSPONSOR - October/November 2019 - C3
PLANSPONSOR - October/November 2019 - C4
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