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Pension Funds & Private Equity: An Evolving Relationship

There is a rising inclination of pension funds towards private equity as a stalwart of impact investing. 

In an article for Investment & Pensions Europe, Pamela Kokoszka expounds on this burgeoning resonance between the two. She draws on research by Pensions for Purpose, gathered from 17 pension funds, which highlights the emergence of private equity, with its capacity to foster growth within enterprises, as a compelling vessel through which pension funds can channel their capital for economic and social betterment. 

The research found that the need to secure a more sustainable future, alongside garnering benefits to their portfolios, was the primary motive of pension funds to invest in impact private equity. It also noted that there is a trend from some DC master trusts and Local Government  Pension Schemes (LGPS) towards locally orientated UK impact investing, encouraged by the government’s levelling-up agenda. Private equity, with its proclivity for active involvement, also serves as a conduit for pension funds to measure and shape the Environmental, Social, and Governance (ESG) considerations of their portfolios. 

Pensions funds, which are conventionally aligned towards more conservative investments, are recalibrating their risk assessment approach against a backdrop of economic change and uncertainty. They are recognising that private equity, although carrying a measure of risk, offers commensurate rewards that can be pivotal for securing pension liabilities. 

"While our research clearly shows the majority of pension schemes (60% of those surveyed) view private equity as the best vehicle for achieving impact, there’s still room for growth in understanding concepts like financial additionality. It’s important to recognise that pension schemes are primarily impact investing for financial reasons, but they are also increasingly focusing on UK impact." Karen Shackleton, chair and founder of Pensions for Purpose


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