Over the last decade many pension funds and institutional investors are significantly increasing their investment in holdings in Private Markets Securities, while individual investors have lagged this trend. Some of the largest considerations for institutions choosing to invest in private securities includes diversification, reliable income streams and absolute return mandates.
It is important to note that although institutional investors and pension plans are moving towards a higher allocation of private investment strategies, individual investors do not have the same risk profiles, investment horizons, and return mandates. As such investors should consider a number of factors including risk, tax, liquidity, and diversification when they deploy capital into alternative investments.
|Alternative Allocation||10 Year Return (A)||15 Year Return (A)||20 Year Return (A)|
|Global Equity/Bond Portfolio (60:40)||0%||4.9%||5.3%||6.0%|
|Average US Endowment Fund (NACUBO)||30%||5.0%||5.2%||6.8%|
|Endowment Funds > $1BN||39%||5.7%||6.5%||7.8%|
|Endowment Funds Top 5||44%||6.9%||8.8%||11.2%|
|Super Endowments (Harvard/Yale)||45%||6.9%||9.2%||11.5%|
Sources: Investing Like the Harvard and Yale Endowment Funds – CAIA: Michael W. Azlen & Ilan Zermati
Insitutions vs. Individual Allocations (Willis Towers Watson)
Source: Willis Towers Watson, “Global Pension Assets Study,” 2019; National Association of College and University Business Officers, “TIAA Study of Endowments,” 2018; Money Management Institute, “Retail Distribution of Alternative Investments,” 2017. Averages provided are dollar-weighted.
Growth of Private Investment Capital
Source: Private Capital Markets Association of Canada Private Exempt Financing Report 2020.