U.S. state retirement systems’ private equity portfolios are outperforming public equities beyond the annual excess return objectives, a new study from Cliffwater showed.
The study utilizes data from comprehensive annual financial reports from 53 state retirement systems with a common fiscal year-end of June 30 that have reported private equity returns at some point since June 2000.
According to the study, private equity returned an annualized net 11% for the 21-year period ended June 30, 2021, well above the annualized return of 6.9% for public equities during that same period. It also exceeds the 3% annual premium or excess return over public equities generally associated with private equity return objectives, according to Cliffwater.
Cliffwater selected the time period because it covers two full market cycles (two bear markets and two bull markets and one incomplete market cycle beginning in July 2019. The total private equity assets represented by the study is about $500 billion, Cliffwater said.
“Private-to-public excess returns are negatively correlated with public equity absolute returns, meaning that private-to-public excess returns are higher in down markets,” said Stephen L. Nesbitt, CEO of Cliffwater, in an email Monday about the study. “Private-to-public excess returns average 2% in years when public market returns are positive and 6% in years when public market returns are negative.”