Tariffs that sent markets into turmoil and were later postponed may be among the top concerns of asset owners — but for university and college endowments, there’s more contributing to the broader climate of uncertainty.
Higher education institutions have also been facing proposed tax policies and federal funding cuts, prompting some of their leaders to be vocal and ght back.
On center stage at the moment, Harvard University President Alan Garber announced that the Cambridge, Mass.-based institution won’t give into demands from the Trump administration — which include the termination of diversity programs, discipline regarding campus protests and increased oversight from the federal government.
The Trump administration — which threatened to withhold nearly $9 billion in funding if Harvard didn’t comply — has fro-
Photo by Sharon Vanorny
Private equity’s increasingly in hot seat, with pension funds bringing the heat
Some asset owners see portfolio company behavior as a risk
Pension funds and other asset owners are turning up the heat on their private equity managers that have been criticized for portfolio companies' less-than-stellar behavior.
Private equity rms are under investigation by Congress as well as the subject of state and federal legislation and federal regulations. Private equity managers are also being sued for cutting costs at the expense of employees, their custom-
Contribution
ers and society, in industries ranging from healthcare and rental homes to childcare.
Asset owners are taking notice.
Some investors are meeting with money managers, sometimes threatening to stop making new commitments, and many are adopting policies on human capital to put their private equity partners on notice.
To be sure, asset owners are still keen on the asset class, especially as the public market retrenches, but a growing number of investors are considering portfolio company behavior as an investment risk when deciding whether to make a commitment to a manager’s latest investment strategy.
“Our council members are certainly concerned whenever they
see allegations of troublesome or controversial business practices from GPs (general partners) or companies in the portfolio,” said Charles Wollmann, director, communications, legislative and client relations of the $61 billion New Mexico State Investment Council, Santa Fe. “While we have worked to avoid certain problematic strategies for that reason, private market investments have long tails, and things like labor disputes do unavoidably occur.”
In October, executives at Blackstone, one of the council’s private equity managers, appeared before the council to explain how the rm had made changes in the way it handles portfolio company employee relations and discussed council members’ concerns with Black-
stone’s single-family-for-rent business negatively impacting housing affordability in New Mexico.
Several commissioners had in 2023 voiced concerns after hearing about ongoing labor disputes at Blackstone portfolio company hotels in Arizona and California.
One commissioner suggested that the council’s relationship with Blackstone could present a business and reputational risk. Another commissioner, New Mexico Treasurer Laura Montoya, suggested that the council discontinue making commitments as it had in 2012 until the rm's portfolio companies improved labor practices.
At the October meeting, Montoya said that after more recent discus-
New plans, more participants driving growth for record keepers
Record keepers serving de ned contribution retirement plans posted strong growth in assets last year, but growth this time was different: Unlike other years, growth was not driven mostly by stock market gains, at least for some record keepers.
At the end of 2024, the 24 largest DC plan record keepers boosted assets to a record $12.2 trillion, up 13.5% from the year before, according to Pensions & Investments' latest annual survey of the rms.
Some of the rms attributed the growth to auto-enrollment and other auto features as well as SECURE Act 2.0, which offered tax and other incentives for employers to start new plans. Others said the growth came from providing plan participants
with an exceptional user experience and low-cost investment options, bene ts that drew new employers to their platforms.
Ascensus, which posted the biggest jump in both assets and new plan sponsors, for example, attributed just one-third of its growth to the
robust stock market last year. It more than doubled its plan sponsors to more than 220,000 and increased assets 24.6% to $258.2 billion.
Apart from Ascensus, four other record keepers distinguished themselves in P&I’s annual survey of record-keeping rms: Alight Solutions,
ADP Retirement, Vanguard Group and Fidelity Investments.
Alight, the third-largest record keeper with $1.5 trillion in assets, stood out on the leaderboard as the rm that grew average participant and plan sponsor balances the most. The average DC plan it serves has $9.1 billion in assets, while average participant balances are just over $129,000.
ADP Retirement had the biggest percentage increase in new participants, growing its participant count 16.1% to 4.4 million. It ranked second in asset growth, hitting close to $150 billion in assets.
Vanguard Group, the fourth-largest record keeper with $812.9 billion in assets, got noticed for ranking second in growing the number of plan
U.S. private equity exits could slow, pressure fundraising
y B ROB KOZLOWSKI
U.S. corporate pension funding ratios remained high at the end of 2024, with more plans reporting surpluses and mulling over their options on how to spend those surpluses, experts say.
Even with recent market volatility, they say corporate plans are far better hedged for downturns since the global nancial crisis.
The publicly traded U.S. companies with the 100 largest dened bene t plans showed an aggregate funding ratio of 97.9% as of Dec. 31, according to Pensions & Investments' analysis of the latest 10-K lings.
That's a slight drop from the aggregate ratio of 99.9% in the P&I analysis a year earlier. However, the number of plans reporting funding surpluses did rise in 2024.
Of the 100 measured plans, 55 had funding ratios of 100% or more, compared with 49 plans that reported that level of funding last year, while 36 plans even had funding ratios of 110% or more, an increase from the 30 plans that reported that level of funding at the end of 2023.
Michael Moran, senior pension strategist for Goldman Sachs Asset Management, said in an interview that it’s not just signi cant that so many pension plans reported growing surpluses in 2024.
“It’s that a number of them, they’ve been in that position for a couple of years now,” said Moran, “and so it’s really given corporate managers time to really think about: What do we really want to do here now?”
The common perception for
Major U.S. public equity indexes have been volatile this year, with the Cboe Volatility index jumping above 50 last month when the Trump administration announced tariffs on many countries. While equity markets have stabilized recently, the S&P 500 and Russell 2000 indexes have lost 4.9% and 11.6%, respectively, year to date through April 30. With the U.S. economy showing signs of sluggishness, a recession could further depress traditional U.S. private equity exit venues, extending holding periods and hurting fundraising.
Exit activity: First-quarter U.S. private equity exits remained well off the pace from previous years across corporate acquisitions, private equity sponsor acquisitions and public listings. There were 236 exits in the rst quarter and 1,207 for all of 2024. By comparison, 2021 saw over 1,900 exits, including 144 via initial public offerings.
U.S. private equity exit activity
Overall IPO volume: While the overall U.S. initial public offering market showed some signs of picking up in the rst quarter, equity market volatility has dampened activity. There were 69 total IPOs that raised $9.9 billion during the rst four months of the year. Back in 2021, nearly 400 IPOs priced with proceeds of over $140 billion.
U.S. IPO volume
Sluggish fundraising: Meanwhile, fundraising has been slowing. In the rst quarter, 79 funds launched, raising $56.7 billion. For 2024, 374 funds raised $305.3 billion compared to over $400 billion in each of the prior two years. Faltering exit activity would likely pressure future private equity fundraising efforts.
U.S. private equity fundrasing
Weaker credits: Nearly all private equity portfolio companies classi ed as high yield by Moody’s Ratings (Ba1 ratings or lower) have single-B credit ratings or lower. Their credit situation could deteriorate if the U.S. economy enters a full-blown recession. That also could depress valuations and exit activity.
Private equity-backed companies’ high-yield ratings distribution
Shelton AI aims to shine light on private market valuations
How can pension funds discern accurate mark-to-market value in private equity and other private market assets? It’s a long-standing problem that Ashby Monk, executive director at the Stanford Research Initiative on Long-Term Investing, says he has struggled with for years.
In software company Shelton AI, there’s one solution, according to co-founders Monk and Harrison Shaw.
Founded in 2021, Shelton AI compiles decades of unlisted asset investments data, in all its messy unstructured formats, including Word documents, email, PDFs and PowerPoints, Shaw said.
“We can automatically track everything, including NAVs, cost basis, fair value, revenues, EBITDA and margins,” said Shaw, a Los Angeles native who lists Monk as an investor and a mentor.
The youngest MBA ever admitted to University of California Berkeley’s Haas School of Business at age 20, Shaw graduated from UC-Berkeley in just two years.
Pension funds have been signing on to use Shelton AI, including at least one of Canada’s “Maple 8” pension funds, Australia’s superannuation funds, Gulf sovereign wealth fund Abu Dhabi Investment Authority and the $23.2 billion Arizona Public Safety Personnel Retirement System, Phoenix.
The demand for private markets AI software is “increasingly driven by regulation,” said Monk. “There’s pressure coming out of Australia, for example, to ensure near real-time NAVs. Regulators want the superannuation industry
to provide better valuations, so members moving from one plan to another get a fair price.”
Shelton AI began working with pensions and other asset owners. But private equity funds and other asset managers have started to seek help from Shelton as well.
“The managers coming to Shelton say they want to make sure they are setting valuations correctly, as well as charging fees and costs appropriately.” Monk said. “These top managers are not trying to play games with their LPs; they simply prefer to avoid mistakes on these issues, and the associated hits to reputation.”
With the explosion in private credit, private equity, infrastructure and real assets investing, the demand for transparent pricing is increasing.
Competitor AI companies, like BlackRock’s Aladdin, Moody’s and Fitch Ratings agencies are circling private markets. MSCI and Moody’s in April said they are launching a platform to provide risk assessments on private credit loans.
But no one has really tried to be the leader of transparency in private markets for pension funds, said Monk.
“My original mission in partnering with Harrison Shaw on Shelton AI was to demonstrate that startups can… work on building audacious solutions to the most intractable technical problems facing pension and sovereign funds. Until Harrison, I struggled to imagine a new generation of unicorn style startup founders taking on the pension industry. Harrison is doing it. And maybe more will try now that he’s clearly succeeding.”
ERIN ARVEDLUND
BOLSTERING APPALACHIAN BUSINESSES
Ford Foundation and KKR co-founder’s nonpro t partner with universities
On a mission to develop the next generation of investment professionals, an initiative between the Ford Foundation and the REDF Impact Investing Fund seeks to go further by addressing the capital gap for rural businesses in Appalachia.
The $5 million Emerging Appalachian Investors Fund will give students at three Appalachian region higher education institutions exposure to venture capital investing by evaluating what businesses will receive capital from the initiative.
Starting as early as this summer, students at Marshall University, Huntington, W. Va.; Ohio University, Athens; and West Virginia University, Morgantown, will help make investment decisions on regional companies. The hope is that some students will pursue careers as entrepreneurs after becoming better informed about raising capital.
And while this commitment “may be small in dollars, we hope it’s big in symbolic power,” said Roy Swan, director of mission investments at the $16 billion New York-based Ford Foundation.
Among overlooked places for capital investments, Appalachia faces a shortage of capital ows into a region known for its rural communities, he noted. While the U.S. Census Bureau estimated 1 in 5 U.S. residents live in rural communities, less than 1% of venture capital is deployed to rural businesses.
Bolstering economic development has been on mind for Swan, Ford Foundation and the REDF — which was established by KKR co-founder George Roberts, and is also known as the Roberts Enterprise Development Fund.
Along the way, the goal is to expand the initiative by gaining traction and collaborating with other duciaries who see that part of their duty is ensuring the well-being of their bene ciaries — and by doing so, ensuring a strong economy, Swan said.
“Our view is that the more the merrier,” he added. “Part of that will depend on the amount of resources that can be raised —
so that’s grant funding, concessionary capital and private capital from private capital investors who are looking for some risk cushioning so it works with their underwriting criteria.”
While the organizations have been brainstorming the idea for the fund years ago, Swan noted the work on the initiative is especially important now given uncertainty surrounding markets and funding cuts.
“But it’s even more important, I think, in this environment, for everyone to think creatively about how we can all work together in unity and bring our creative skills together to help create a more prosperous and safer America,” he said, adding that this sort of collaboration is what he calls the notion of “patriotic capitalism.”
“That’s what this is — it is investment in consideration of country, democracy and the common good,” Swan added. “And when people have great access to capital and can unleash their entrepreneurial spirits, grow their businesses, and create jobs, great products and services, that’s what America is all about.”
CARYL ANNE FRANCIA
Texas Christian University promotes lifelong investment learning to students
Texas Christian University students have been afforded the chance to learn from and network with investment professionals visiting classes at the Fort Worth-based campus, said Chief Investment Of cer Jason Safran, who is a former student himself.
But he said there’s something unique about the university’s annual Investment Strategies Conference, which draws in a crowd of 400 students, alumni and industry professionals annually to learn about mega long-term trends and prepare for careers in the investment world.
The on-campus event began in 2003 with nancial support from alumnus J. Luther King, now principal, president, CIO and portfolio manager of namesake investment rm Luther King Capital Management.
Also attended by local asset owners and university faculty, the event is presented by Texas Christian’s Neeley School of Business, the Luther King Capital Management Center for Financial Studies, and the investment
of ce staffers who oversee the university’s $2.7 billion endowment.
And with the Class of 2025 set to graduate this month, Safran said the conference is a reminder that “learning is a lifelong objective — and it doesn’t stop.”
Investors are “constantly adapting to new data and new trends. It’s not like we graduate, and we can turn that learning switch off,” he said.
“We’re all still students in one way, shape or form. What really creates a rich environment is the intersection
of practitioners, managers, allocators and students all coming together to wrestle with an investment theme.”
Guest speakers for the conference have included government leaders such as former President George W. Bush and former U.S. Treasury Secretary and Fed Chair Janet Yellen; and investment professionals Rick Rieder, senior managing director and CIO of global xed income at BlackRock; and Cliff Asness, founder, managing principal and CIO of AQR Capital Management.
Each conference focuses on a theme around long-term investing trends on the mind of Safran’s team, with the most recent event held on April 22 centered around “Going Direct,” referring to what Safran called the linkage between asset owners and the businesses that use that capital, as well as “signi cant structural shifts” happening in nancial services due to innovation in producing real-time data, regulating nancial market and creating distributed ledger technology like blockchain.
“We also wanted to explore how the nancial landscape is increasingly decentralized,” he added.
“There’s more ef cient money transfer systems available that improve the basic usability of money. And that ultimately makes for a more prosperous economy — so this is really an exciting time as well.”
The CIO also encourages peers to provide students with experiential learning moments and resources that model what an investment career looks like — and foster the lifelong curiosity that enables investors to succeed in the industry.
“We hope it will encourage them throughout their career to press into continued learning opportunities — whether it’s a conference or something else to develop real-world skills the CFA program (or) CPA program,” Safran said. “There’s so much out there, but we hope that our graduates will look to continually ne-tune their skillset long after they’ve graduated from
INVESTMENTS: Harrison Shaw (left) and Ashby Monk
TCU.” CARYL ANNE FRANCIA
A CHANCE TO LEARN: At Texas Christian University’s 2025 Investment Strategies Conference, TCU Investment Management’s Adam Singleton, left, Base10 Partners’ Adeyemi Ajao and J.P. Morgan Private Capital’s Rick Smith discuss digital nance in an April 22 panel in front of students.
Andy Emery
SCENIC VIEW: The mountainous view of Ohio University in Athens from Bong Hill.
Flickr/Sarah Hina
Nomura acquires Macquarie’s U.S. and Europe asset units
y B SOPHIE BAKER
Japanese nancial services group Nomura agreed to acquire Macquarie’s U.S. and European public asset management businesses in a $1.8 billion all-cash deal.
Nomura is buying three companies from Macquarie: Macquarie Management Holdings, a Delaware-based U.S. public asset management business; and Europe-based Macquarie Investment Management Holdings (Luxembourg) and Macquarie Investment Management Holdings (Austria). The three rms run about $180 billion in institutional and retail assets across equities, xed
income and multiasset strategies.
The deal is set to close by the end of the year and is subject to closing conditions and regulatory approvals, a news release said.
Global asset management is a key strategic growth priority for Nomura, the release said. The rm currently manages about $590 billion in assets.
The deal will expand Nomura’s global capabilities and footprint, increasing total AUM for Nomura’s investment management franchise to about $770 billion, with more than 35% managed on behalf of clients outside its home market of Japan. It will also give Nomura a Philadelphia-based “scaled hub” to further grow its inter-
national business, the release said.
Shawn Lytle, president of Macquarie Funds and head of Americas for Macquarie Group; John Pickard, CIO equities and multiasset; Greg Gizzi, CIO xed income; and Milissa Hutchinson, head of U.S. wealth, will continue to manage the business following the acquisition.
Nomura has plans to support organic growth, increase AUM and diversify the businesses’ capabilities post-acquisition, the release added, and will work with the Macquarie management team.
Plans include to develop new investment capabilities, to scale Macquarie’s active ETF platform that it
established in 2023, to invest in talent and data analytics to grow the distribution platform and to leverage
BONUS: US Pension Fund Tour
The day before the conference, we’ll host a select group of pension fund
tour of leading fund o ces — a unique day of insight and connection.
CONTENT WILL COVER:
• Asset Allocation: How public funds are reshaping the portfolio construction
• Plan Governance: Best practices from fellow asset allocators
• Risk Assessment: Strategies for building a resilient portfolio in any scenario
for an
existing distribution channels to provide institutional and retail clients with access to Nomura’s asset management capabilities.
“This acquisition will align with our 2030 global growth and diversication ambitions to invest in stable, high margin businesses,” said Kentaro Okuda, Nomura president and group CEO, in the release. “It will be transformational for our investment management division’s presence outside of Japan, adding signi cant scale in the U.S., strengthening our platform and providing opportunities to build our public and private capabilities. We are delighted with the prospect of welcoming all 700plus employees that will be joining the Nomura Group.”
The deal also includes an agreement to collaborate on product and distribution opportunities, with Nomura becoming a U.S. wealth distribution partner for Macquarie Asset Management and giving access to alternative investment capabilities. Nomura will also provide seed capital for Macquarie Asset Management alternative strategies that are tailored for U.S. wealth clients.
The two companies will establish a joint working growth to explore additional potential opportunities to create value.
Macquarie’s U.S. and European public asset management business was formed through the acquisition of Delaware Investments in 2010. Further acquisitions, including of Waddell & Reed in 2021, added to its actively managed, long-term and open-ended U.S. mutual fund manager capabilities and expanded the U.S. client base.
The relevant U.S. and Europe public asset management Macquarie businesses have of ces in Philadelphia, Kansas City, Vienna and Luxembourg. Its business is consists of about 50% equities, 40% xed income and 10% multiasset, and is comprised of 50% retail, 35% insurance and the remainder institutional business. By region, the rm’s AUM is 90% U.S. and the remainder international.
Macquarie Asset Management has a total A$916.8 billion ($576.4 billion) in assets under management. It retains the public investments business in the home market of Australia, and will be a more focused alternatives business for institutional, insurance and wealth elsewhere in the world, Macquarie said in a separate news release.
“We are proud of the public investments business we have built and grown over many decades,” Ben Way, head of MAM, said in the release. “We are pleased that Nomura will carry it forward into a new phase of growth in North America and Europe. We are also excited to further strengthen our collaboration with Nomura, creating bene ts for our respective clients.”
STRATEGIC GROWTH: Nomura Holdings’ Otemachi head of ce in Tokyo.
CONFERENCE CALENDAR 2025
Toronto | May 13-14, 2025
New York | May 20, 2025
New York | June 10-11, 2025 Insurance Allocators Roundtable
UK Pension Fund Tour
London | June 10-11, 2025
Dallas | September 9-10, 2025
Influential
Chicago | September 18, 2025
Pension Derisking
Chicago | October 7-8, 2025
Defined Contribution West
Pasadena | October 26-28, 2025
WorldPensionSummit
The Hague | November 4-6, 2025
Public Funds
Austin | November 19-20, 2025
CUSTOM
It wasn’t long ago that private equity rms looking to invest in professional sports found the door rmly shut. Franchise ownership was largely the domain of billionaires, families, or consortiums of high-net-worth individuals. But in 2019, that started to change. Major League Baseball became the rst North American league to allow private equity investment in its franchises and others soon followed, including the NFL, long regarded as the most guarded of the major leagues.
This shift has triggered a wave of private equity activity in the sector. Yet, as the playbook for sports investing expands, so too do the complexities. For investors, the sector’s growth is undeniable, but realizing meaningful returns requires navigating regulatory hurdles, limited liquidity and operational risks. The opportunity set is real, but it’s one that demands careful diligence.
Ownership, control and exits
Sports assets, particularly in North America, don’t t neatly into traditional private equity frameworks. In the major U.S. leagues, private equity investors are limited to minority stakes — often capped at 20% to 30% — with little operational control. Even where minority investors negotiate provisions for board seats or decision-making input, their in uence is typically constrained.
media rights. As traditional broadcasters struggle with declining viewership, tech giants like Amazon and Apple are stepping in, aggressively bidding for exclusive rights to premium sports content. For these rms, live sports are a vehicle to deepen customer engagement and differentiate their platforms. This has led to a fresh injection of capital into leagues, further boosting franchise valuations.
Media deals account for a healthy chunk of the billions made in the sports world every year. The NBA’s recent TV deal worth nearly $75 billion over 11 years is one example of the immense value of live sports content in the media landscape. And it’s not just in North America; this is a global phenomenon. In cricket, the Indian Premier League saw its cumulative brand value grow 13% year over year to $12 billion in 2024, driven in part by key media rights deals with companies like Disney Star and Viacom.
Corina Lewis Associate project director Sarah Tumolo Senior manager, events & conferences
That stands in contrast to Europe, where private equity rms have been able to acquire controlling stakes in clubs and leagues. In terms of exit planning, this means more available pathways, from IPOs to full sales to another PE rm or strategic buyer. The CVC acquisition of Formula One is a wellknown example of a control investment, where CVC had full operational control, governance power, and the ability to ultimately sell at a time of their choosing — to Liberty Media for $4.4 billion in 2017.
In North America, exits are generally more complex. What’s more, the track record is often limited, and the industry needs time to mature. The pool of potential buyers is also limited, transactions require league approval, and timelines can be unpredictable. While buyers may be institutional, sophisticated and well resourced, timing and motivations might not always align. For private equity investors used to de ned exit horizons, these constraints require a different mindset.
For private equity investors, the sports sector offers the allure of cultural relevance, anticipated steady demand and growing institutional acceptance.
Sports’ cultural signi cance also supports demand. In many markets, fans’ emotional connection to their teams and athletes creates a loyalty that withstands broader market volatility. Even in a recession, people will still sit down to watch their favorite team. In fact, they’re more likely to do so because it brings them comfort. This “stickiness” is part of what makes sports an attractive — if unconventional — asset class.
Beyond the playing field
havior, leadership decisions, or league scandals
impact asset value.
Regulatory and governance hurdles are another barrier. Each league sets its own policies on outside ownership, and investors must navigate approval processes, minority rights limitations and board dynamics.
An expanding asset class
Looking ahead, the opportunity set seems likely to broaden. Investors are closely watching emerging trends in digital ticketing, AI-powered fan engagement, and blockchain-enabled rights management.
Media deals and cultural resilience
So why invest? At the heart of the sector’s appeal is the durability of demand. Despite shifting consumer preferences and economic cycles, sports fandom has proven remarkably resilient. Global sports industry revenue — from ticket sales to merchandising to media rights — is predicted to grow at a compound annual growth rate of 7%, from $463 billion in 2024 to just over $600 billion by 2028, further rising to nearly $863 billion by 2033. The world’s 30 most valuable soccer teams are worth an average of $2.3 billion, up more than 5% since 2023.
The sports investment landscape stretches well beyond team ownership. Private market investors are increasingly eyeing adjacent subsectors, including sporting goods, nutrition, fan engagement platforms, stadium technology and sports betting. These areas offer exposure to the underlying growth drivers of sports — media rights, fan loyalty and cultural relevance — without the governance complexities of direct league ownership. Some investors are even turning to emerging and niche sports, from pickleball to regional go-karting leagues, which appeal to new and younger audiences. But these opportunities can resemble venture-style investments, often carrying higher risk and less mature market dynamics.
Risks and considerations
Sports investing isn’t without its challenges. Valuations are often sentiment-driven, in ated by high-pro le bidders and a limited supply of assets. Some owners view team stakes as passion projects rather than purely nancial investments, pushing up prices beyond fundamentals.
Operationally, investors face risks tied to governance, legacy infrastructure and brand management. Sports franchises are public-facing entities, and headline risks — be it athlete be-
The rise of women’s sports leagues, with growing fan bases and media interest, presents another promising growth stream. In 2024 alone, the National Women's Soccer League signed a landmark $60 million annual media deal and WNBA viewership surged to record highs, with investors and sponsors increasingly treating women’s leagues as high-growth assets rather than side bets. According to PwC’s recent Global Sports Survey, 85% of sports industry leaders anticipate double-digit revenue growth in women's sports over the next three to ve years.
Beyond equity ownership, private market investors are also exploring creative ways to participate, including through lending to franchises, investing in real estate development around stadiums, or providing growth capital to sports-related businesses.
A playbook still in progress
For private equity investors, the sports sector offers the allure of cultural relevance, anticipated steady demand and growing institutional acceptance. But it also requires patience, creativity and an understanding that this is not your typical PE asset class. The playbook is still being written.
Sports investments can be an effective component of a diversi ed private markets strategy, but only for those prepared to think long-term and work within the structural realities of this unique corner of the market.
Balaj Singh is a senior vice president at Meketa Investment Group.
OTHER VIEWS ZACH BARAN
Dissecting the new exit game in private markets
The start of 2025 marks the second year of one of the longest slumps in exit activity in private markets’ history. Over the last two years, “distribution yield”— the ratio of quarterly distributions to prior quarter NAV — has averaged about 2.8%. For context, the long-term average distribution yield is 4.9%.
Private markets AUM and aggregate NAV have tripled since 2014; in contrast, overall private markets fund distributions have grown by only 29% (Figure 1). This is a puzzle. During this time, all signs pointed to a U.S. economic boom, featuring tight credit spreads, rising U.S. growth, low and stable unemployment, healthy scal stimulus, and soaring investment in high-performance computing.
This has all changed with the April 2 announcement of reciprocal tariff rates by the U.S. As analysts have pointed out, the net effect is a scal contraction equivalent to 2% of GDP. Unless we ratchet back to the previous status quo, a negative shock to U.S. growth is a reasonable base case.
A cyclical contraction will undoubtedly make the private markets exit slump worse. And yet, what’s been happening in the last three years is, in our view, not entirely cyclical.
One critical, yet often overlooked, reason for the recent slump in exits is a secular shift in the competitive structure of private markets. This has altered the rules that sponsors must follow to survive and thrive in a competitive market for capital and new deals. The persistent difculties in the fundraising market for many sponsors, combined with high multiples for new origination and alternative sources of liquidity to LPs and GPs, have changed the rules governing the exit market. This is the “new exit game.”
The old exit game
you sell it once you nd one, especially to another sponsor? Why cede market share to a competitor, lowering your fee-paying capital base, incur the costs of raising new money, and accept the high origination cost of nding a replacement asset? In the old exit game, it made sense to absorb these costs, because holding assets too long presented unacceptable risks. You had to sell. GPs “paid” for reliable follow-on fundraises by generating realized performance, including truncating good investments early, if necessary.
The result was a quasi-cooperative marketplace for new deals. Since strong realized performance was existential, new deals were not dif cult to originate, driving exit volume.
The new exit game
Recent years have signi cantly changed the incentive structure and business model of private markets managers. In the new exit game, large carry realizations are no longer an optimal source of rm liquidity. The single “maturity wall” of fundraising can be extended through perpetual capital and continuation vehicles (or CVs). The need to scale to compete is reducing the incentive to default to an early exit of a performing asset.
Larger managers are playing and winning the new
The traditional private equity business was designed to be fragile. These rms were collections of dealmakers, regularly raising one pool of capital from institutional investors. The only differentiator was absolute performance: if you had it, you survived and earned capital for your follow-on fund. In a one-product rm, the GP’s liabilities “all came due on the same day”— i.e., when the current fund ran out of dry powder. The cost of poor performance was the rm’s existence.
that are more inelastic and
Product diversi cation, private wealth capital, the rise of CVs, and GP stakes and IPOs are all connected to the decline in exit activity. In the new exit game, the cost of new origination has increased, while CVs have enabled managers to continue earning management fee dollars beyond the traditional hold periods enforced by the old exit game. Simultaneously, the fundraising market’s reliability for small- and mid-sized GPs has decreased dramatically (Figure 2). Strong realized performance alone is no longer a guarantee of LP support, due to prolonged allocation stress and continued trimming of manager rosters.
Instead, larger managers are playing and winning the new exit game by activating sources of capital that are more inelastic and reliable, namely retail and insurance. The largeand mega-funds raised as much capital from these verticals in 2024 as all small-cap sponsors raised from any source.
Fundraising trends
This encouraged incentives in favor of early partial and full exits of portfolio companies. GPs wanted to de-risk preferred return hurdles and generate realized carried interest to fund future GP commitments. There was no alternative to this nancing mechanism.
In addition, GPs enjoyed a predictable fundraising market: those with good performance could count on being rewarded by LPs with follow-on fund commitments. With strong performance, institutional capital was not hard to unlock, and LP churn was relatively low.
Think about it: The cost of originating, underwriting, and monitoring a high-quality private equity deal is expensive, time-consuming, and requires specialized expertise. Given how hard it is to originate high-quality deals, why would
To recap, each exit game had two facets. In the old exit game, realized investment performance was existential, and the only way to get it was to sell assets, re-raise capital, and repeat the cycle. The fundraising market enforced this dynamic — dispensing GPs that did not perform while rewarding those that did. This led to a robust “inventory” of sponsor-backed assets for sale, resulting in strong, relatively predictable exit activity. The market was in a prolonged period of equilibrium.
In the new exit game, each incentive has ipped. The fundraising market now rewards scale, sales capability, product breadth, and “solutions” as much as performance. The winners of the new exit game can raise money without fully exiting positions. And good performance is no longer enough.
New exit game dynamics, coupled with record-high multiples for deals, encourage GPs to hold assets longer, limiting the inventory of
assets for sale. This creates a self-ful lling loop that is driving the disequilibrium observed in today’s exit market.
Winning the game
Winning the new exit game will require new capabilities to cope with these challenges.
First, sponsors and allocators must appreciate and internalize the structural changes coming to our market. A cyclical rebound could happen, of course, and no one can claim with certainty whether we will see one. But the long-term trends appear to be pointing towards less activity, more asset “hoarding,” and more competition for market share.
Second, allocators need to press managers on their “right to win,” what makes it defensible, and how competitive advantages translate to persistent alpha creation. As LPs consolidate GP relationships and concentrate capital with the largest managers, it will be important to ensure the value of the remaining capital
allocated to smaller managers is maximized by prioritizing the highest alpha generating relationships.
Finally, all sponsors must appreciate the growing role of traditional asset management operating capabilities, including brand building and differentiation, capital structure and balance sheet optimization, and professionalized sales and marketing. These ingredients will be crucial to succeeding in the era of the new exit game.
Over the long-term, we see potential for the market to shift in ways previously unimaginable — more open-ended structures, more LP-to-LP liquidity at scale, and more consolidation around the rms best positioned to win the new exit game.
Zach Baran is managing director at Arctos. He is based in New York.
Source: Preqin, Goldman Sachs; As of December 2024
If the SEC approves ETF share classes, the real work begins
Asset managers looking to unlock bene ts with portfolio exibility
y B ARI I. WEINBERG
More than two decades after Vanguard Group launched exchange-traded funds as a share class of index mutual funds, at least 50 asset managers and nancial advisers are ready to crash this club of one.
The ability to house traditional mutual fund share classes and an ETF within one structure, they argue, brings economies of scale to expenses as well as fund-wide trading and tax bene ts.
The majority of issuers making this request are looking to offer both active and indexed products with multiple share classes; some have requested only active relief; and even fewer are targeting just indexed offerings, according to data compiled by law rm Stradley Ronon Stevens & Young.
Vanguard held a patent on the structure until May 2023. While a handful of asset managers proposed a similar structure during the patent period, none moved forward nor did the industry challenge Vanguard’s exclusivity.
U.S. Securities and Exchange
Commission approval of recently re led applications for exemptive relief from certain conditions of the Investment Company Act of 1940 is expected imminently — and the Investment Company Institute recently recommended that ETF share class approval be among the top priorities in an open letter to new SEC Chair Paul Atkins.
Green-lighting the exemptions, however, still places issuers closer to the starting gate than the nish line. While most of the asset managers with pending applications are experienced ETF issuers, industry participants say there remains a lot of work to be done for advisers and fund boards before share-class nirvana becomes a reality.
“It’s a win for investors, the industry and the SEC,” said Gerard O’Reilly, co-CEO and co-chief investment of cer of Dimensional Fund Advisors, the rst fund group to amend its share class application on March 31, almost two years after its initial submission. The updated application enumerates reporting and analysis obligations for both the adviser and the fund board, with more speci city than the initial ling.
A cascade of amended applications from other asset managers has followed.
Aggregate assets in U.S.-listed ETFs closed April at $10.5 trillion,
according to FactSet Research Systems. Through March, according to ICI, mutual funds (excluding money market funds) held $21.1 trillion. Without the ETF share class option, asset managers have been running similar strategies across product lines — ETF clones or minor alterations to strategies run in traditional funds and separate accounts. Then, following the 2019 adoption of the ETF Rule (known as 6c-11 for its position in the ’40 Act), mutual fund to ETF conversions also became an option, often tax-managed strategies held primarily by investors outside of tax-deferred and nontaxable ac-
counts. The ETF Rule also leveled the playing eld for active strategies, relative to indexed or passive strategies, for ETFs that fully disclosed their portfolios each day.
Custom in-kind baskets key bene t
Another key bene t of the ETF Rule has been the ability to use custom baskets for in-kind creation and redemption of ETF shares. Previously, most issuers had to offer a pro-rata share of the portfolio (or cash) in exchange for ETF shares, and vice versa. Custom baskets, paired with the potential for cash
in ows from mutual fund purchases, give asset managers more exibility in adjusting a portfolio.
While each of these factors plays a role in the share class calculus, the SEC speci cally did not move forward with multishare-class standardization in its 2019 rulemaking. At the time, it was concerned with scenarios whereby the ETF share class is burdened by mutual fund-related transactions.
The solution in new exemptive relief applications is greater monitoring by advisers and fund boards on cash drag, tax ef ciency, ows, and transaction and brokerage costs.
The bogey is a 2009 capital gains distribution by the Vanguard Extended Duration Treasury ETF, which was precipitated by selling in the mutual fund shares, according to Ben Johnson, head of client solutions, asset management, at Morningstar.
The ability for ETFs to create and redeem securities in-kind helps fund advisers eliminate low-costbasis securities without requiring a sale, both through natural ows as well as so-called heartbeat trades with authorized participants. Active ETFs, relative to active mutual funds, have bene ted greatly from these features. According to Morningstar Direct, over the 10-year period ended Dec. 31, 2023, only 13% of active
LEGACY: State of Wisconsin Investment Board’s Edwin Denson
headcount or put longer-term strategic projects either on hold or to scrap them because of a drop in the market or bad performance from one investment team. That’s a big difference. We’re free of the dynamics in the for-pro t asset management environment that ultimately compress the actual investment horizon.
Now, why the move to SWIB? Well, different from my role at CPP, the opportunity at SWIB really offered me the ability to have even more of a meaningful impact on and control over the investment structure of the fund. I was brought in as head of asset and risk allocation and in that role, you’re not only helping to determine the overall strategic asset allocation of the trust fund, but also putting together the active risk budget. So that means: Where are we actually going to put the capital? How much risk do we want the risk takers to be taking in each of those areas? Do we manage money internally or externally? Or whether to be active or passive in any particular market?
I did not have any ties to Wisconsin, but had known David Villa for well over 15 years when he started to recruit me. I was born and raised in Chicago, and I have a sister who is a public school teacher there. She’s worked for the Chicago Public School System for her entire career. So for me, that put front and center
the importance of pension bene ts for retirement security for the people who dedicate their working lives to public service.
Q | Can you talk about what you took from David Villa, from the time you knew him before SWIB and afterward?
A | He was an ideas guy. He helped SWIB be a pioneer in what he called investment modernization for public pensions. These are things like policy leverage, alpha/ beta separation, or portable alpha, an emphasis on internal management of assets where possible, and also pushing the investment decision-making down to staff, so a lot of delegated authority while maintaining appropriate oversight. He had ideas, but a really nice thing was that he let the experts do the implementing and let them have their hour to shine. And as an example, one of the rst things I did was to nd a simpler and less constraining path to achieve an effective outcome, that David wanted, regarding the exibility for staff to deviate from the strategic asset allocation if warranted by market conditions. He had the right idea, I just thought, of a simple, straightforward and ef cient way of getting to that outcome in the context of our governance.
Q | During your first four years at the helm of SWIB, what have been your primary short-term and long-term goals for the organizations, and what kinds of investment-related initiatives have you prioritized?
A | I’ll take the organizational leadership on rst. In the short term, just the need to provide stability, and then assembling the senior management team that I wanted to go forward with, because unfortunately, we didn’t have the luxury of having a period of overlap and parallel for the transition, as you referenced his passing was indeed untimely. I needed time to determine who internally and who externally I could assemble for the senior management team to take us forward, but de nitely building on David’s legacy and the path he had set out. Of course, with some ner points and nuance coming from myself. It was nice that I had no disagreement with where David wanted to go philosophically at all. Philosophically we came from the same place. Of course, I’m a different person, so there might be a different implementation path.
One of the longer-term investment objectives that we’ve been working on dovetails with something that David had put in place. I referenced earlier policy leverage and alpha/beta separation. Along with that is capital ef ciency, and that’s something we’ve really been striving to improve and enhance.
We have an implementation working group that is across investment divisions thinking about how we can make our dollars work harder for us. So we’ve encouraged some teams to take higher active risk with the same capital that they have. There are others where we’ve asked them to deliver the same dollar returns, but with a smaller capital allocation. Both paths in effect increase the active risk on each dollar we have deployed because we do have a large, stable balance sheet. We want to take advantage of that as much as we can.
Q | According
ture of the internal investment staff evolved in your first four years at the helm? And what if any, are some of the enhancements you’re hoping to make in the Investment staff?
A | I’d say the major developments are rst, we have meaningfully increased our footprint in private markets. (In December, SWIB’s target to private equity/debt increased to 20%, up from 2021 when the target was 11%). That was always part of the strategic plan going back to about a year before David passed away. In private markets, you have to be very deliberate and careful in your pacing when you’re increasing your footprint. We’ve done that to good success.
On the internal management side, we’ve made a big investment in managing xed income internally. We have added mortgage-backed securities and leveraged loans to our investment policy and launched internal active strategies in both. In addition, we’ve in-sourced most of our high-yield allocation to be managed internally. In general, we’re modernizing what we do internally in xed income using asset-backed and structured-product type instruments.
Longer term, we’ve started to focus on resilience for the investment teams. And what I mean by that is building out the teams by focusing more on junior resources, who we would want to be the next generation of risk takers and leaders for SWIB and moving away from having top-heavy teams. We would rather build and develop the human skill set for that next generation of risk takers and leaders, than be in a constant cycle of having to go out and buy that talent on the open market.
Q | What changes have you been making, both from an asset allocation standpoint and investment personnel, which you kind of addressed during this time as a result of changes in rates? What are you anticipating from rates?
A | We have increased our allocation to xed income a bit, both in the public space and as I mentioned, our private footprint has been increasing as well including private credit. It’s just fortuitous that we’ve been building and broadening out our internal expertise in xed income at the same time that we’ve had this pretty meaningful change in the rate structure. On the rates question, I will answer as somebody who never believed that real interest rates could stay at zero or below for an extended period of time. That wasn’t a sustainable equilibrium. We are now seeing something that’s more normal in terms of a rate structure and given what’s happening around the world in terms of government debt dynamics and in ation, I think that we’re much more likely to have higher for longer.
Q | In a December 15, 2021 memo you said the key theme from the review and discussion of other strategic issues was that the next 10 years will be challenging for the fund from a total return perspective, as returns on assets are generally expected to be low relative to longer term expectations. That’s in part because of higher than average realized returns from risk assets over the last few years. Does this generally still hold true?
A | I believe it does but less so than at the end of 2021; 2022 brought asset valuations back to more reasonable levels, both in equities and xed income, which
in this rare event both sold off. But what that means is, when things sell off, their long-term prospects actually improve a bit. But since then, of course, the U.S. equity market continued to reach all-time highs, at least until recently. And credit has not really been cheap on a relative basis either, but the underlying cash rates for all avors of xed income are higher than the end of 2021, which does help. In the end, it’s really the valuation of large-cap U.S. equity, which is a large part of the global capital market, that remains challenging.
Q | The executives I’ve been speaking with this year expressed quite a bit of excitement because they see diversification coming back. Would you also echo that sentiment?
A | What was tough about 2022 was there was no diversi cation bene t from any part of the xed income market. That was tough and talking a little bit theoretically, all else equal, the higher the stock/bond correlation is, or the less negative is it is, then the riskier any portfolio with a balance between equity and xed income is going to be. So it’s just better for everybody if we have more of that diversi cation bene t coming from xed income, and we have seen more of that this year.
Q | SWIB has a Funds Alpha program which consists primarily of hedge funds, which doesn’t appear as an asset class in your core trust fund asset allocation. Can you talk about how you utilize hedge funds?
A | We don’t consider hedge funds to be an asset class. That’s why they’re not in the asset allocation. We see them as active strategies in the active risk budget. That’s part of that alpha/beta separation that I referenced. We replace public market betas through derivatives or through borrowing to free up the cash to put into hedge funds. You can think of the hedge fund being overlaid onto the market beta. So again, that’s how we think of hedge funds. They’re potentially a really good source of active return. And then what we’ve been doing over the last couple of years is re ning that book by concentrating more in the managers that the Funds Alpha team has conviction in. There is an overall ask of that hedge fund portfolio that it does not have any market beta in it, in effect, because it’s supposed to be an overlay onto the market betas that we want from an asset allocation perspective.
Q | What tactical, opportunistic moves have you been making over the past four years?
A | Remember that 90% of the difference in the long-term returns between pension plans can be explained by their average asset allocation over the period, and that can be interpreted as the strategic asset allocation. So that’s really the most important thing over the long run. But that said, when you’re running $130 billion in assets like we are in our core trust fund, tactical moves can add value.
I’ll go back a little bit further than four years. In March of 2020, at the height of the scare over COVID in the capital markets, we deliberately and meaningfully moved our fund to be overweight vs. the strategic asset allocation in both equity and high yield, and that ended up helping us achieve one of our best relative performance years since 2009. Then jumping to much more recently, in July of last year, we re-
duced our outright exposure to U.S. equity vs. policy.” (For the year ended Dec. 31, 2020, the WRS Core trust fund returned a net 15.2%).
“Prior to that, we had been tilting away from the U.S. in favor of other areas of the equity market on a relative basis. But again, at that point, in the middle of last year, it just seemed like enough was enough in terms of the valuation of the overall equity market. We reduced our public equity exposure vs. the strategic asset allocation. And as you can imagine, that has paid off since January.
Q | Artificial intelligence is dominating a lot of discussions among asset owners. Can you talk about any initiative SWIB currently has involving AI, and more broadly technology and data?
A | I’m really excited. We hired a new chief technology of cer just about a year ago who came with a very strong asset management background. He is very interested in helping enable us take advantage of arti cial intelligence. The way I think of it, it’s like any other productivity enhancing innovation. It’s something that will not replace people, but it could make them more productive and hopefully free them up to spend their time on more high-value activities. So, for example, we’re experimenting with having AI deal with the quarterly letters we get from our external partners to tease out common themes. But we have to do it in a very controlled way. We have to make sure that none of our proprietary information is somehow making it out into the public domain in some unintended way. So we immediately put in an AI policy as part of governance, so that we are very deliberately moving into a spot where we’re just exploring how much we can take advantage of the new technology to make us more effective. Q | What has been the biggest challenge for you as executive director and CIO over the past four years? Both from an internal standpoint and a macroeconomic standpoint, what is keeping you up at nights?
A | There’s a couple of things. First, internally is building and maintaining our culture over time, as we grow, develop and evolve. Right now, about 60% of our current staff has joined SWIB since COVID, so that’s not that long ago. On the other side, we also have staff members who’ve been around for decades, and it’s really important to mesh those two cohorts together. But the culture is also evolving in ways that are critical to our future success. We’re focused on a culture of excellence and innovation that keeps up with the pace of changes in the markets, and we couple that with a daily focus on what is in the best interest of the funds that we are entrusted to run. Again, that’s the mission. And I see the combination of excellence, innovation and dedication to the mission as critical to our future success, and it’s an ongoing challenge to manage that successfully. When we think about culture, I say to our board repeatedly, culture is not a project that you work on for six months or a year. It’s an ongoing exercise.
On the investment side, in isolation, the prospect for mediocre returns on risky assets and the deterioration of the xed-income diversi cation bene t makes portfolios riskier. That’s something I continue to worry about. n
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scrolling through our phones to see what new policy was enacted overnight?”
“Will that stop this summer? Will it continue into the fall? You know, nobody’s really sure,” said Cowan, “so I think a lot of people are just sitting and pausing on allocations that they may have queued up for the year with their SAA (strategic asset allocation) to just see where it’s going to go.”
"Then on the ip side, there's others who are being a bit more proactive and saying now is a good time to really look at where (they) can play into some more defensive or resilient opportunities to get
some additional yield and diversify. Because that is, you know, one thing that can help you build a bit of a safety net into your portfolio, regardless of where the market's going to go, so it can go both directions," Cowan said.
"And I think that the theme of diversi cation is where we're leaning into in conversations I'm having with insurers to talk about areas, particularly on the alternative side, where they can build up defensively where they are positioned currently."
Geoff Cornell, senior vice president and chief investment of cer of insurance at AllianceBernstein,
said with so much market uncertainty and volatility, insurers want to sit on the lower end of the risk range and watch what’s happening.
“Tariffs are a lot like COVID, right? First of all, we don't even know what the tariffs are like. It's impossible to know exactly what they are but you don't know what the effect of them is going to be. Directionally, we think we understand what the effect is going to be, but there's a lot of uncertainty. There's a lot of volatility, and I think that makes us think that we should be on the lower end of the risk scale and be a little cautious,” Cornell said.
“The question really is as balance sheets have morphed over the past ve years from very liquid to less liquid: How do those assets actually perform when you get into a stress scenario, right? We haven't really seen a credit stress scenario in many, many years,” said Cornell.
“So what we do is we rely on the deep fundamental analysis that we've been doing for decades in insurance, and look at it and say what we think the stress scenarios could be, and what does it do to our capital, and what does it do to other things? There are a lot of new entrants into the markets that haven't had those decades of expe-
rience, and maybe haven't seen the cycles that we've seen, and it'll be interesting to gure out if these are true cycles.”
“If we do go into a recession or a slowdown or something like that, how do all these different balance sheets that have been taking various forms of risk perform? I don't have a crystal ball. I don't have a really good answer, but I'll say we try to be a little bit more cautious when you see volatility and markets like this, and then we try to rely on the deep fundamental analysis that we've done over the years to make sure that we can withstand some of these stresses as they happen.”
INSURANCE ASSETS 2025
‘PUBLIC FIXED INCOME LOOKS INCREDIBLY ATTRACTIVE RIGHT
Insurance asset managers enthused about xed income’s rebound, but private markets here to stay
Insurance asset managers are renewing their enthusiasm for public xed income as the asset class emerges from years of low yields and returns. However, managers still continue to embrace the evolution of their portfolios in nding new opportunities in private markets, industry experts say.
KOZLOWSKI in 2022 when the Federal Reserve raised interest rates so quickly. For the year ended Dec. 31, 2022, the Bloomberg U.S. Aggregate Bond index lost 13%.
David Braun, managing director and generalist portfolio manager at Paci c Investment Management Co., said in an interview that public xed income has had a rough few years but is looking very attractive now.
He pointed out in particular the tiny yields in 2020 and 2021, followed by “horrible” total returns
“Public xed income has been dragged through the mud for the better part of the past ve years, but we think that’s in the rearview mirror,” said Braun. “If you really look at the front windshield, public xed income looks incredibly attractive right now. A lot of these custom benchmarks our insurance clients will pick … they’re highly investment-grade, maybe AA- (or) A+ average quality with duration between four (years) and six or seven (years), they’re yielding 5.5% to 6%. Yeah, so boring is back! If you get 5.5% to 6% on a high-quality liquid public xed-income fund, a lot
of clients are saying, ‘Why do you need to go chase other things?’”
“You had to go chase other things when the 10-year Treasury was yielding 50 basis points in August of 2020, a lot of people got out of their comfort zones and went into private investments that they may or may not have fully understood because the yields were more attractive,” Braun said. “Now we’re seeing more and more people say, ‘If I can get 5.5% to 6% here, do I really need to chase it and get out of my natural comfort zone?”
Traditionally, insurers have been very long-term investors with conservative portfolios due to strict regulations under state laws and the National Association of Insurance Commissioners, which require a high level of capital efciency. That has often meant the signi cant majority of insurance company portfolios consists of investment-grade xed income.
That dominance, however, has abated since the global nancial crisis. During an extended era of historically low interest rates, insurers have had to seek higher yields in riskier assets, with life insurers particularly willing to do so because of the lengthy duration of their liabilities.
As of Dec. 31, 2023, the entire universe of af liated and nonafliated insurance company assets totaled $8.5 trillion, according to the latest National Association of Insurance Commissioners Capital Markets Bureau special report on the U.S. industry’s cash and invested assets.
That total represented an increase of 4.4% from the $8.15 trillion in total assets a year earlier.
Gradual decline in traditional xed income
While xed-income assets still made up a majority of all insurance
assets, that percentage dropped to 60.8% from 62.3% a year earlier.
Fixed income has seen its dominance of insurance portfolios decline gradually since the end of 2010, when the NAIC said approximately 70% of insurance portfolios was invested in xed income.
The remainder of the asset allocation as of Dec. 31, 2023 was 13.9% common stocks, 9% mortgages, 6.3% schedule BA and other assets (nontraditional assets that include private equity, private credit and hedge funds), 5.5% cash and shortterm investments, 1.6% contract loans, 1.2% derivatives, 0.5% real estate, 0.4% preferred stocks and the remainder in other investments. Common stock investments saw the greatest growth from the previous year, when 13.2% was allocated to the asset class. The NAIC report cited the strong equity markets during 2023 for the growth. Its share has also risen since the
y B ROB
Sovereign Wealth Funds
Singapore’s GIC nds $9T investment opportunity in climate adaptation
y B SOPHIE BAKER
The investment opportunity afforded by climate adaptation is set to reach $9 trillion by 2050, with growth expected in both emerging and established technologies and solutions, Singapore sovereign wealth fund GIC said.
Research by the fund, which has around $850 billion in assets according to industry estimates, found that global annual revenues from select climate adaptation solutions are projected to grow to $4 trillion by 2050, from $1 trillion today. Of that gure, $2 trillion represents incremental growth driven by global warming, a report of its research — titled “Sizing the Inevitable Investment Opportunity:
Climate Adaptation” — said. Analysis of the growth driven by global warming is a factor that is not widely incorporated into current industry forecasts, the report added.
The investment opportunity in public and private debt and equity is $2 trillion today. Of the expected $9 trillion that gure is expected to reach by 2050, $3 trillion of which will be from incremental growth attributable to global warming, the report said.
“As the physical impacts of climate change escalate, climate adaptation is emerging as a signi cant and complementary investment theme alongside decarbonization,” GIC said in the report. Opportunities will be found in emerging technologies such as
Endowments and Foundations
weather intelligence, and more established solutions such as weather-resilient building materials.
GIC said that research on climate-related investment opportunities has largely focused on decarbonization, while climate adaptation has received less attention “partly due to the misperception that it is primarily the responsibility of national governments.”
However, as climate change and its physical impacts escalate, adaptation will need to be scaled across all parts of society, including by governments, businesses and communities.
“This creates a vital role for the private sector in strengthening economic and community resilience to physical climate risks.
Companies offering adaptation solutions are thus emerging as a complementary and increasingly investible part of the broader climate response,” the report said.
Alongside Bain & Co., GIC reviewed industry and scienti c studies to nd which solutions were most relevant to private sector investors. Its key ndings beyond the size of the investment opportunity included that the opportunity for investment “remains signi cant regardless of climate scenario” and different temperature rises over the next 25 years. “This suggests investors can build conviction in this space without needing to predict the precise climate pathway.”
The paper is available for download on GIC’s website. n
Yale studying sale of PE holdings on secondary market
y B CARYL ANNE FRANCIA
Yale University is considering selling some of its $41.4 billion endowment’s private equity assets, a spokesperson con rmed.
First reported by Secondaries Investor, the New Haven, Conn.based university would sell part of its private equity portfolio on the secondary market and be advised by investment bank Evercore. The university, however, did not provide a speci c target size for the portfolio sale.
The potential sale of private equity fund interests has “been in the works for many months,” the spokesperson noted in an email.
A spokesperson for Evercore could not be immediately reached.
For the scal year ended June 30, Yale’s endowment posted a net return of 5.7%, the second-lowest
among Ivy League schools after Princeton University’s 3.9% return.
The median of endowment returns tracked by Pensions & Investments for the most recent scal year was 9.5%.
But over the 10 and 20 years ended June 30, Yale returned an annualized 9.5% and 10.3%, respectively.
While Yale does not disclose its actual or target allocation for speci c asset classes, CIO Matt Mendelsohn attributed the 2024 scal-year performance to a “signi cant allocation to private assets” in a news release. A nancial report for the 2024 scal year noted the endowment is roughly 95% invested in “assets expected to produce equity-like returns through domestic and international securities, real assets, and private equity.”
“We expect to lag during peri-
ods of strong public market performance, particularly when exit markets for private assets are depressed,” Mendelsohn noted in the news release. “As always, we remain focused on achieving investment success over the long term, knowing that doing so is likely to bring stretches of short-term underperformance.”
Under longtime CIO David Swensen, the university had adhered to an endowment model that shifted away from public equity and bonds and into more illiquid assets such as private equity and venture capital — both asset classes that are expected to continue facing headwinds this year, investment consultants said.
In extreme cases where universities are facing liquidity issues, higher educational institutions may have to sell their private eq-
ETFs distributed a capital gain compared to 66% of active mutual funds. Many of the largest mutual fund managers have led for the share class exemption, including BlackRock, Fidelity, Franklin Templeton, J.P. Morgan Asset Management, Morgan Stanley, PGIM, PIMCO and T. Rowe Price, according to Stradley Ronon.
Morningstar's Johnson estimates there are more than 3,000 mutual funds potentially in play across 56 unique lers. The funds held a combined $9.8 trillion in assets as of the end of April — representing nearly half of total assets in U.S.-domiciled mutual funds. Of the lers tracked by Morningstar, only six do not currently offer ETFs.
The exemptive relief applications do not indicate which mutual funds the issuers are considering for an ETF share class. “The approval may end up being the easiest part of this process,” said Morningstar’s Johnson. Fund advisers and the fund boards will have to evaluate for which products an ETF share class would make sense; what is the liquidity pro le of the underlying holdings; and what is the scalability of the strategy, Johnson said.
Recently re led relief applications lay out a host of initial and ongoing reporting obligations to the fund board regarding the sources of costs and bene ts for the fund, as well as potential remedial actions. Of particular interest to the SEC is the notion of “cross-subsidization” for costs due to mutual fund classes’ cash ows. In its ling, Dimensional notes that an ETF share class is actually designed to remediate this impact by giving the more frequent buyers and sellers a secondary market vehicle (the ETF) that does not directly impact underlying holdings of the whole fund.
While the plumbing ecosystem — custody banks, transfer agents, authorized participants, securities exchanges — is fully in place to handle the share class revolution, there is still work to be done on the mechanism that will allow a onetime tax-free switch from a mutual fund share to an ETF share while maintaining the cost basis. (Vanguard currently facilitates this for investors who hold Vanguard mutual funds held in Vanguard brokerage accounts on almost all of its products that have both mutual fund and ETF share classes. Four broad-based bond funds are not included.)
uity holdings to the secondary market at a discounted price, noted an April 3 analysis by Markov Processes International of larger schools, including the Ivy League.
However, among university endowments like Yale with more than $5 billion in assets, the average asset allocation to secondaries could barely be counted in the 2024 NACUBO-Commonfund Study of Endowments.
However, amid current headwinds for alternatives, “we remain committed to private equity investments as a major part of our investment program and continue to make new commitments to funds raised by our current investment managers,” the spokesperson noted. “In addition, we continue to seek new relationships with private equity rms in the endowment.” n
“The industry is working on an automated, standardized approach to handle the switching,” said Ben Slavin, managing director and global head of ETFs for BNY Asset Servicing, which supports more than $2.9 trillion in ETF assets.
Dimensional’s O’Reilly said that his rm had to coordinate with 60 different entities to facilitate wholesale mutual fund to ETF conversions. Those platforms had to translate individual investors’ tax bases across the switch.
“The ETF tech stack will be ready,” said BNY’s Slavin, “but several providers looking to issue an ETF share class still need to stand up their ETF operating model and then determine which funds are actually appropriate.”
Slavin does not expect a rush of new ETFs in the short term, but does see record ETF product development over the next few years. n
Retirement
certainly rise very materially and much of the good that has been achieved in recent bipartisan legislation could be undermined."
Congressional action
Mason said it will be challenging to get congressional action. "Legislation to x this will require 60 votes in the Senate, which in turn will require Democratic votes," he said. "Democrats have been very protective of participants' ability to sue in the past."
Without a change in the law, retirement plan sponsors “will have to come up with a process that in some way justi es every step” in their transactions with providers, said Lynn Dudley, senior vice president for global retirement and compensation policy for the American Bene ts Council, which represents private employee retirement and health bene ts programs covering more than 100 million Americans.
“Rather than bundle the services, they will have to break it apart,” she said.
The bottom line for de ned contribution plans: “People will get less,” she said.” I fear far fewer services.”
Dudley added that plans will emphasize cost, such as adding more index funds, resulting in “far less innovation.”
Differing opinions
The Supreme Court took the Cornell case in part because different federal appeals courts had issued differing opinions on the responsibilities of participant-plaintiffs vs. defendant-sponsors in convincing judges about prohibited transaction complaints.
Sponsors want standards that place the burden on participants, a higher bar for plaintiffs that could lead to lawsuits being dismissed — the rst and cheapest line of defense in litigation.
A federal District Court in New York and the 2nd Circuit Court of Appeals, New York, endorsed this approach in the Cornell case, which was originally led in 2016 by participants in two Cornell 403(b) plans.
Retirement plan members say the burden should fall to the sponsors, who must prove that their transactions with third parties such as record keepers are exempt from ERISA's prohibited transaction rules.
The Supreme Court, in an opinion written by Justice Sonia Sotomayor, backed the participants, reversed the appeals court ruling and sent the case back to the trial court, which will review the participants' original complaint about excessive fees.
“It is defendant duciaries who bear the burden of pleading and proving that (an ERISA) exemption applies to an otherwise prohibited transaction,” Sotomayor wrote.
"Plaintiffs seeking to state a (prohibited transaction) claim must plausibly allege that a plan duciary engaged in a transaction proscribed therein, no more, no less,” Sotomayor wrote. “Plaintiffs are not required to plead and prove that the myriad (ERISA) exemptions pose no barrier to ultimate relief."
Setting the bar for complaints
Industry representatives said the ruling makes it easier for participants to sue and to overcome a motion to dismiss.
"Considering the large — and increasing — number of suits being
led ... one might well wish for better legal guardrails to thwart them,"
Nevin Adams, an attorney and former chief content of cer for the American Retirement Association, wrote in an analysis of the decision for ARA.
"But this result seems unlikely to slow the current pace — and might well accelerate it," he wrote.
Jerome Schlichter, the participants' attorney, disputed the industry's comments.
“Floodgates will not open,” said Schlichter, founding and managing partner of Schlichter Bogard.
The ruling “was based on a strict interpretation of ERISA,” he said.
“It’s a classic case of a conservative interpretation of what the statute says. This isn’t legislating from the bench.”
The court placed the burden on sponsors to show their actions were
exempt under ERISA, he said, “a straightforward and clear decision,” said Schlichter. "I don’t see any ambiguity.”
The 9-0 ruling is "eclipsed by the court’s statements regarding how its interpretation of the relevant provisions of ERISA raises ‘serious concerns,’ namely that the relaxed pleading standards will open the oodgates to meritless cases that will survive motions to dismiss," said Tom Christina, executive director of the ERISA Industry Committee's Legal Center. "The court clearly has misgivings about that result."
Those misgivings showed up in Sotomayor's opinion as well as a concurring opinion by Justice Samuel A. Alito Jr., who was joined by Justices Brett Kavanaugh and Clarence Thomas.
"The unanimous decision, and even more so the concurrence, ex-
pressed concern that these results could result in litigation going deeper into the process, resulting in delay and expense," said Andrew L. Oringer, partner and general counsel for the Wagner Law Group.
The justices "took the unusual step of suggesting the use of special federal rules that could allow a district court to dismiss claims where an af rmative defense is plainly available and the claims are essentially spurious," Oringer said. "The court, however, was stuck with the statute's structure, and therefore could not do more."
The unanimity of the justices' ruling may have been a surprise to some retirement industry members based on the oral arguments in January.
"That seems nuts," Kavanaugh said at the time, referring to the plaintiffs' argument.
"All you need to do is plead something that seems to be on the surface completely innocuous," Alito said. "That's enough to get you beyond the motion to dismiss."
In his concurring opinion, Alito wrote he joined the majority because he was following the strict construction of ERISA.
The law contains a list of af rmative defenses — the exemptions — and ERISA says plaintiffs aren't required to challenge such defenses, Alito wrote.
"It would make no sense to require a complaint to anticipate and attempt to refute all the af rmative defenses that a defendant might raise," he wrote.
"Unfortunately, this straightforward application of established rules has the potential to cause — and, indeed, I expect it will cause — untoward practical results," he wrote.
Pension Derisking
Carving a Measured Path Through Emerging Markets
Wednesday, May 21 | 2:00 pm ET
In a year of macro unknowns – from trade policy to the growth outlook – institutional investors focused on long-term global opportunities that are supported by structural megatrends continue to be selectively optimistic on emerging markets. While caution is the overall watchword, a diverse set of equity and credit assets in emerging markets can deliver the diversification and risk-adjusted returns they seek. Underlying drivers such as the reshu ing of global supply chains, shifting consumer trends and digitalization are supporting companies and credits that are at the forefront of these mega trends. Join us for this audio webinar where asset managers will go behind the headlines on emerging markets to unearth the current opportunity set via their flexible and bottom-up approach, share insights on their comprehensive analysis at the local level, and explain the advances in data and risk management that are providing greater confidence in emerging markets exposure.
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In an era defined by shifting global power dynamics, persistent inflation, and trade tensions, the outlook for emerging markets is anything but straightforward. Join MetLife Investment Management and Meketa Investment Group as they unpack what’s behind today’s cross-currents in emerging markets—and what’s ahead.
This one-hour discussion will explore:
-Whether recent asset price dispersion is signaling structural change or short-term dislocation.
-The impact of China’s policy direction and retaliatory tari s. -U.S. growth momentum—slowdown, soft landing, or something else?
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The conversation will also address how policy risk, evolving trade relationships, and investor sentiment are reshaping the EM opportunity set—and what long-term fundamentals still o er compelling value.
Infrastructure assets are riding the wave of powerful global megatrends, including decarbonization, urbanization and digitization, that are being seen in the transition to renewable energy sources and newer transportation structures, power grids and AI data warehouses. How can institutional investors get their arms around this vast opportunity set? How can they build an e ective infrastructure allocation — one that will provide the diversification, robust riskadjusted returns and inflation-hedging that this asset class can deliver?
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The funded status of corporate pension funds 2025
The
Source: Company 10-K filings
Corporate
the past 15 years since corporate funding ratios hit bottom following the global nancial crisis is that corporations have wanted to derisk by freezing their plans to future bene t accruals and moving as many liabilities off their balance sheets as they can by transferring them to insurance companies.
Indeed, the pension risk transfer business is thriving despite numerous lawsuits in 2024 that alleged some of those transactions were not safe, Moran said.
According to a recent survey from LIMRA, U.S. pension risk transfer volume topped $50 billion in 2024, just shy of the record-setting volume in 2022. That included jumbo deals completed by Verizon Communications Inc., New York, and International Business Machines Corp., Armonk, N.Y., in which the companies transferred $6 billion and $5.9 billion, respectively, to insurance companies.
Despite the vigor with which some sponsors are executing those deals, Moran said because of funding surpluses, many companies now nd themselves at a crossroads.
“We’re at this high funded level. We’ve been there for a long time, and for some of them (plan sponsors), that means continuing to go down their glidepath and derisking clearly,” said Moran. “But for others, you’re seeing a little bit of a pause. When you’re 70% funded, all you want to do is get out of the pension business. When you’re 110% funded and you have no contribution requirements and maybe you’re generating pension income, maybe they want to stick with this for a little, and so I think we’re seeing plans do that.” That could be simply keeping the plan and letting it generate that income, or using the surplus to reopen a DB plan or use those surplus assets in other ways.
In GSAM’s 2024 Pension Review published on March 18, Moran analyzed the largest 50 U.S. corporate pension plans and found an aggregate funding ratio of 104%, the third straight year that universe had a funding surplus.
Moran said on the margins he
has seen some plans that are still open and underfunded beginning to rerisk their portfolios by increasing their allocations to equities and lowering their allocations to xed income.
“I think for some plans — and we work with some of them — when they moved down their glidepaths, maybe they realized maybe they moved a little bit too far too fast, and we look at that surplus return that we need to generate to help make up that de cit, as well as funding bene ts, and maybe we need to tweak that a bit at the margin,” Moran said.
Moran would not name any speci c plans, which are also on the margins looking into using their surpluses to reopen portions of their DB plans.
Michael Buchenholz, head of U.S. pension strategy in the institutional solutions strategy and analytics team at J.P. Morgan Asset Management, said sponsors should think about taking advantage of how their investment returns have been outperforming the growth of liabilities over the last 10 years.
“On top of that, for the last couple of years … despite a lot of market volatility, funded status movements have been pretty muted,” said Buchenholz, “and I think that just speaks to the amount of risk that has been removed from the system, both from an asset allocation and liability perspective.”
“I think it’s important to look at the past performance because I know pension risk transfers are still continuing, but there’s an opportunity cost there. When you get rid of those liabilities, you’re also giving away those assets, and those assets have outperformed liabilities by over 2% over the last decade,” Buchenholz said.
Divergence among plans
According to JPMAM’s 2025 Corporate Pension Peer Analysis, authored by Buchenholz, discount rates rose by about 50 basis points in 2024, and investment returns averaged 2.9% among the top 100 corporate pension plans. Among the 50 plans that began the year with a surplus, their funding ratios rose an aggregate 5.4 percentage points during 2024, while those plans that began the year with a de cit saw an
aggregate increase of only 0.9 percentage points.
As Buchenholz explains in the analysis, it is a “rich getting richer” scenario. Underfunded plans must earn excess returns vs. their liabilities just to keep their funding ratios from declining, while overfunded plans can underperform vs. their liabilities but still see their funding ratios go up.
What has resulted, Buchenholz said in his interview, is that two very separate, distinct types of mechanics between overfunded and underfunded plans have developed within the universe of corporate pension plans.
“I think perhaps a lot of CFOs and executives still have ingrained in them this world of underfunded mechanics where it’s very hard to improve funded status,” said Buchenholz. “We think it’s worth — once you’ve reached full funding or above — revisiting your prevailing attitudes toward keeping the plan on your balance sheet and really thinking about this almost different set of physical laws when you’re overfunded or underfunded.”
At least two notable publicly traded companies have taken advantage of funding surpluses to reopen their pension plans.
It was in November 2023 when IBM shocked the institutional investing community when it announced its decision in November to scrap its 401(k) corporate match and reopen its de ned bene t plan with a cash balance component. As of Dec. 31, the company reported a funding ratio of 123.7% in its 10-K ling. While no other company of IBM’s massive size reopened their DB plan during 2024, one other corporation in P&I’s Top 100 made a similar move.
Spring eld, Mass.-based Eversource Energy announced to employees in August that as of Jan. 1, 2025, the rm would establish a new cash balance plan replacing enhanced contributions in the Eversource 401(k) Plan. The cash balance plan is described as a new, additional obligation of the existing pension plan in the company’s 10-K ling. As of Dec. 31, Eversource reported a funding ratio of 116.2% in that 10-K ling. Of cials at the
Portfolios
sions she was con dent in the council’s partnership with Blackstone. At the same meeting, Jon Clark, New Mexico's new state investment ofcer, said that staff lets its partners know when it has concerns.
“We don’t want to be investing in things that will negatively impact society,” Clark said. “Social risks are de nitely on our radar and we do engage with managers when concerns arise.”
But he added, “At the same time we have to do what’s best for beneciaries” and that is getting returns on investments.
Pro ts over patients, and investigations
Investors continue to be enthusiastic about the private equity asset class but they are mindful of certain “topics and considerations” such as the U.S. Justice Department’s investigation into private equity anticompetitive practices in healthcare, said Steven Hartt, managing principal at consulting rm Meketa Investment Group.
Among recent headlines was a bipartisan Senate Budget Committee report released in January that said that private equity-owned healthcare companies are putting “pro ts over patients” by underinvesting in critical hospital infrastructure and understaf ng often to the detriment of patients.
On the local level, a number of state legislatures including California, Massachusetts and Connecticut are considering bills that would put guardrails on private equity investing in healthcare. And Connecticut, Massachusetts, Vermont, and New Jersey have bills that would put controls on ownership of childcare chains by private equity rms, which the bills’ backers say are charging fees and cutting costs including staff layoffs at the expense of children and families.
These sorts of topics concerning private equity-owned companies come up, and “will get attention by the boards,” Meketa’s Hartt said.
Also in January, the U.S. Justice Department accused six single-family housing landlords including real estate managers and private equity portfolio companies including Blackstone's LivCor for price xing rents using each other’s competitively sensitive information through common pricing algorithms.
Institutional landlords like Blackstone own 0.5% of all single-family housing in the U.S., said Kathleen McCarthy, global co-head of Blackstone Real Estate, the rm’s $315.4 billion real estate business, at the October New Mexico State Investment Council meeting. Her comments were in response to a council member’s question, according to a recording of the meeting and the meeting minutes.
McCarthy said that Blackstone executives are mindful of the affordability of housing and that rent re ects the supply of housing and comparable rents in the area. She added that Blackstone’s build-torent strategy is part of the solution by developing more homes.
Private equity industry executives say they are hopeful that things will cool off in Washington.
“We’re working with the Trump administration and Congress on policies that encourage more private investment across our country and eliminate unnecessary red tape that sti es American innovation and job
creation,” said Drew Maloney, president and chief executive of cer of private equity lobbying group American Investment Council. “The AIC team will also continue to work in the states to protect private equity’s license to operate and build better businesses of all sizes.”
At the same time, the industry trade group is working to overturn regulations it says could drive up costs and discourages capital investment into businesses. In January, the AIC led a joint lawsuit with the U.S. Chamber of Commerce, the Business Roundtable and the Longview Chamber of Commerce opposing the Federal Trade Commission’s and Department of Justice’s new premerger noti cation requirements. That lawsuit is ongoing, an AIC spokesperson said.
California pension funds
CalSTRS will be spending the next two scal years, in part, taking on the issue of effectively overseeing private equity investments.
The California State Teachers' Retirement System, West Sacramento, in scal years 2025 and 2026 will be considering an additional investment belief stressing the importance of private markets engagement. CalSTRS will also be reviewing and possibly amending its responsible contractor policy, corporate governance principles and ESG risk factors policy to see how effectively they address private markets investing.
Alternative investments are no longer a sexy niche but are making up an increasingly large slice of asset owners’ portfolios.
The U.S. de ned bene t plans among the 200 largest plan sponsors had 34% invested in private markets as of Sept. 30, according to P&I data. Many investors are looking to private markets for diversi cation and return enhancement over public markets.
At CalSTRS, private markets make up 44% of its $349.7 billion portfolio, up from 9% in 2000, said CIO Scott Chan at the investment committee’s Jan. 8 meeting. CalSTRS' $55.2 billion private equity portfolio outperformed its benchmark for the one-, ve- and 10-year periods ended Dec. 31. The pension fund earned a net 8.9% above its 7% benchmark for the year, 14.9% vs. 13.1% benchmark for the ve years and 12.9% vs. 11.4% for the 10 years. Private companies have unique
challenges, such as they are less regulated and there is less transparency, Chan said.
That is more reason for CalSTRS to engage with its private markets partners, he said.
In the traditional private equity commingled fund model, limited partners don’t own the underlying assets, Chan said. However, CalSTRS has been steering its entire portfolio, including private markets, toward a collaborative model that gives the pension fund more control.
CalSTRS is aligning its interests with its private markets GPs through “collaborative model structures with more control, ownership and ultimately hold them accountable,” Chan said.
Of cials at the second-largest U.S. pension fund are also planning a private markets education program for the investment committee that will include topics on engagement practices with private market partners and how staff seeks to respond if and when stakeholders raise concerns, as well as effective board oversight in private markets investing, optimal governance and engagement practices.
When they have become aware of issues at private equity-backed companies, the CalSTRS team has not stood by quietly, former CIO Christopher J. Ailman said at his last investment committee meeting before retiring in 2024.
Blackstone portfolio company Packers Sanitation Services in 2023 paid $1.5 million to the Department of Labor for employing at least 102 children, ages 13 to 17, to work overnight shifts at 13 meat processing plants in eight states. Packers Sanitation was a portfolio company of Blackstone Core Equity Partners, a fund in which CalSTRS is an investor.
At the time, Blackstone said in a statement that it stands “unequivocally against child labor violations — which are fully opposed to our values and PSSI’s own hiring policies.” Packers enhanced its extensive procedures to prevent identity theft, hired a new CEO, established a $10 million charitable fund to combat the broader child labor crisis in America, and implemented a wide-ranging remediation plan to address this issue, Blackstone said.
One board member, California Superintendent of Public Instruction Tony Thurmond, during a January 2024 discussion of stewardship
Fund, Albany, adopted labor principles for private equity portfolio companies.
The American Federation of Teachers in July released its Labor Standards Platform to help guard against human capital issues, such as child labor, at private equity portfolio companies. The AFT has close to 1.8 million members, who participate in public and private-sector retirement funds with about a combined $3.4 trillion in assets.
A CalPERS spokesperson said that the market has taken notice of its labor principles since their adoption in November 2023; New York adopted principles in 2024. CalPERS’ labor principles include support for workers’ freedom of association and collective bargaining while asking managers to attest that their portfolio companies do not use forced or child labor.
“There has been a signi cant increase in awareness of CalPERS’ views on labor issues and what our expectations are of managers,” the spokesperson said.
priorities, said he was concerned that there were young people working in dangerous conditions at a private equity portfolio company.
“I don’t want to leave it and say it gets handled by a framework (for GP engagement),” Thurmond said.
Ailman responded that CalSTRS of cials ew to New York and met with Blackstone.
“We felt they took suf cient action to ensure that it would never occur again,” including making personnel changes at Packers, Ailman said. “We were satis ed but we never stop. ... We will monitor the heck out of them.”
“They have obviously heard from other” investors, he said.
This was not the rst time CalSTRS of cials were persistent in their engagement with a GP, Ailman said.
“We met with one GP ve times to get us out of an investment,” over issues at portfolio companies, he said. “They have a very good idea what it means to manage money for California teachers and what we want in terms of return and their effect on society.”
For its part, Blackstone is showing it is serious about human capital issues, creating workforce principles in 2024.
“We believe that being attentive to the well-being of our portfolio companies’ employees is foundational to building successful businesses — and is aligned with our duty as duciaries,” said Blackstone spokesperson Matthew Anderson in an email. “We have long encouraged our portfolio companies to adopt and maintain strong workforce management principles for their employees — as part of creating long-term value for our investors.”
Blackstone’s principles include that portfolio companies should invest in worker training, comply with national, state and local laws concerning worker health, safety, wages, labor relations, pensions and insurance, and prohibit underage and forced labor.
Some asset owners have put their expectations for treatment of workers in writing.
CalPERS, NY Common adopt principles
The $533.4 billion California Public Employees’ Retirement System, Sacramento and $273.4 billion New York State Common Retirement
In April, CalPERS asked its private markets managers to attest to its labor principles and most have done so, the spokesperson said.
Indeed, all new private market investments have included CalPERS labor principles attestation and all public managers, including af liates, have attested to the principles as well, Tamara Sells, associate investment manager at CalPERS, told the investment committee at its November meeting.
“Ultimately, the greatest impact has been to shine a light on labor issues which we view as a nancially material issue,” the spokesperson said.
In general, CalPERS of cials believe that “sensitizing asset managers and investee companies to labor standards and principles can lead to increased awareness and can help mitigate and even prevent certain labor issues from occurring,” the spokesperson said.
And if that doesn’t work, CalPERS of cials are not afraid to take actions affecting the managers’ pocketbooks. Anton Orlich, managing investment director, private equity, said during a June investment committee meeting that there have been situations “where the stakeholder engagement process has resulted in a reduction in a commitment size,” which in some cases resulted in a commitment that was 60% or 70% less than originally contemplated.
Many asset owners take note of issues during their ongoing due diligence of private equity managers.
Jonathan Grabel, chief investment of cer of the Los Angeles County Employees Retirement Association, Pasadena, Calif., declined to speak about any particular private equity rm but said that pension fund ofcials not only do due diligence before making a commitment but that oversight continues throughout the life of the investment.
“One of the dimensions in underwriting an investment is by looking at the rm from a policy and practices standpoint as it relates to stewardship,” Grabel said. In addition, LACERA is an active voice in serving on LP advisory committees at private equity rms, he said.
Adams Street Partners, a $62 billion private markets manager, also leans heavily on its due diligence process.
“We have ESG screens to identify untoward human capital practices by managers,” said Jeffrey Diehl, a managing partner and head of investments at Adams Street. n
SOLIDARITY: Thousands of Southern California hospitality workers rati ed a new contract with 34 hotels after repeated strikes.
Growth
sponsors it serves to nearly 36,000, up a remarkable 63.9% from the year before.
Fidelity Investments grabbed attention simply because of its size. With $4 trillion in assets, it is way ahead of its next nearest rival, Empower, which has $1.6 trillion in assets. Fidelity ranked No. 4 in asset growth but muscled in for the No. 2 spot in growing its average plan size to $124 million, up 12.7% from 2023.
Pensions & Investments spoke with each of the ve record keepers to understand the key drivers behind their growth and whether they expect to see similar growth this year. Brief pro les of the ve record keepers follow.
Alight Solutions
Unlike other record keepers, Alight credits most of its asset growth in 2024 to stock market gains and its related effect on the “relatively rich” retirement bene ts that employers offered their employees, said Rob Austin, head of thought leadership at Alight.
In addition to generous matches, some employers provided the workforce with nonelective and in some cases pro t-sharing contributions. Some employers even offered employer stock in their workplace retirement plans, and many of those stocks outpaced the S&P 500, which last year returned 25%.
“People who had signi cant weighting of employer stock in those plans saw really, really high returns in 2024,” Austin said, adding that about half of Alight’s plan sponsors offer employer stock.
To Austin’s thinking, the rising market was the main reason why Alight was No. 1 in boosting average plan sizes and participant balances and No. 3 in overall asset growth.
Average plan size swelled 23.9% to $9.1 billion, while participant balances jumped 19.1% to roughly $129,000. Its assets rose 21.1% to $1.5 trillion.
In addition to market gains, auto-escalation features in Alight record-kept plans also played a role in its strong growth last year.
“When you have higher contributions going in and you have better asset returns, that’s going to fuel balances to go higher,” Austin said.
When asked whether Alight expects the same growth this year given the current market volatility over U.S. tariff policies, Austin was skeptical.
“Predicting market returns are always dif cult, but I think it would be very surprising to see a return this year like what we saw last year,” Austin said.
ADP Retirement
ADP Retirement, the 15th-largest record keeper with $150 billion in assets, came in rst for growth in new participants, second for overall asset growth, and fourth for growth in new plan sponsor clients.
ADP Retirement boosted the number of participants 16.1% to 4.4 million and the number of plan sponsors 11.5% to almost 179,000. Its overall assets were up 21.2% yearover-year.
It attributed most of the growth to Secure 2.0 provisions, which mandated auto-enrollment for new retirement plans and included strong tax incentives for employers to launch workplace plans. In addition,
Largest DC record keepers
$397,470
$300,398
$291,746
SPONSORS
state-facilitated retirement programs, such as CalSavers and OregonSaves, which require employers to offer the state plans if they don’t offer one themselves, also played a role, said Chris Luongo, division vice president for strategy and business development at ADP.
“We’re nding that a lot of small employers prefer choosing a private plan, and the great news is they’re choosing us,” Luongo said.
Luongo added that the company’s “value proposition” was also resonating in the market by making plan administration “really easy.” For example, the record keeper calculates Secure 2.0 tax credits for new plan sponsor clients, giving them worksheets that they can give to their CPAs to make sure they take advantage of the tax credits, he said.
Lastly, the record keeper has a huge client base of 1 million payroll clients that it can tap into for retirement plan referrals.
“That’s really helped us to drive a lot of the growth,” Luongo said, referring to ADP’s 1 million payroll customers.
Luongo is optimistic about ADP’s continued growth in record keeping, despite the market downturn amid uncertainty over tariffs and the new Trump administration.
“Small businesses will continue to start plans even though there’s some uncertainty,” he said.
Ascensus
Ascensus, a record keeper that describes its “sweet spot” as plans under $50 million, recorded the greatest asset gains, growing 24.6% to $258.2 billion.
It also led record keepers in new
Total assets under record keeping
$12,245,313
client acquisition, more than doubling the number of plan sponsors to 220,449. In addition, it ranked second in bolstering the number of plan participants, which increased 14.9% to 5.2 million.
Nick Good, president of Ascensus, attributed the growth in plan sponsors to the acquisition of Vanguard’s individual 401(k), multiple participant SEP and SIMPLE IRA plans business last April. He declined to disclose how many plan sponsors joined Ascensus’ platform as a result of the acquisition.
Good said the bump in new participants was due to getting plan sponsors to double down on the use of auto-enrollment and auto-escalation. He also cited the company’s nudges to entice employees to develop healthy savings behaviors. For example, when participants reduce their savings rate, Ascensus automatically tells them what impact that decision
returns driven by low costs that keep dollars in the pocket of investors,” he said.
Brancato added that Vanguard’s low-cost managed account offerings also played a role.
“When you’re in an environment where most of the options out there are these high-cost advice solutions, Vanguard really stands apart,” Brancato said.
Vanguard’s managed account advice is available at an annual net advisory fee of approximately 0.15% for fully digital advice or approximately 0.3% for hybrid advice with a human adviser, pricing that Brancato said compares favorably with the rest of the industry.
Brancato also touted Vanguard’s pricing advantage in serving the small end of the market, where he said fees for investments, advice offerings and record-keeping service are especially high.
Total participants record kept
128,956,370
Total sponsors records kept 985,933
will have on their retirement.
As many as one-third of the people don’t go through with the savings rate reduction once they understand the impact, Good said.
Good expects to see healthy growth in both assets and participants this year but is realistic given the volatile markets the world is facing.
“Twenty- ve percent growth in assets is pretty hard to achieve given where things stand right now,” he said, adding that a recession would make it more challenging for business owners to set up new plans.
As far as participant growth, the company would be happy with a growth rate in the “high single digits.”
“If we’re in the double-digit growth rates, I think that would mark a very good year,” Good said.
Vanguard Group
Vanguard Group, the fourth-largest record keeper with $812.9 billion in assets, ranked second in new client acquisition, boosting the number of plan sponsors to 35,936, up 63.9% year-over-year. Its overall assets increased 13%.
The growth was driven by Vanguard’s low-cost investment funds and advice offerings as well as the personalized experience it offers participants, said Matt Brancato, chief client of cer of Vanguard’s Workplace Solutions division.
Those three essential Vanguard “ingredients,” he said, “cause people to want to be a Vanguard client and continue to be a Vanguard client.”
Vanguard’s target-date funds are particularly attractive to plan sponsors because the funds have “delivered steady, long-term, top-quartile
Brancato did not have gures readily available on what rivals charge small-market plans for advice and other services but shared that Vanguard’s advice is offered at an annual net advisory fee that starts at approximately 0.15% and that its target-date funds have a net expense ratio of 0.08%.
Vanguard recorded a sharp decline in the average plan size, dropping 30.3% to $23 million.
When asked whether the small market was a new focus for Vanguard, Brancato demurred, saying growth was consistent across market segments but that the small market was where Vanguard had the greatest pricing advantage.
“We have seen consistent growth in that segment of the market for sure,” he said, referring to the small market.
Brancato declined to elaborate on the possibility of matching last year’s growth in new client acquisition and overall assets under management.
“It’s not something we focus terribly much on,” he said. “It’s more about the outcomes. The growth comes when it does.”
Fidelity Investments
Fidelity Investments, the undisputed market leader with $4 trillion in assets, ranked fourth in asset growth, posting a 16.6% year-overyear asset increase. It came in second in boosting its average plan size to $124 million, up 12.7% from 2023. Wilson Owens, Fidelity’s senior vice president for workplace strategy, planning and advice, attributed the growth only partly to market gains. The growth was also due to steady participant contributions from new participants either entering the workforce or moving over to Fidelity’s platform as well as from current participants, he said.
In addition, 40% of participants increased their contribution rates, which also helped boost assets.
The asset growth also came from several new clients that joined Fidelity’s platform last year, many of which were large plans, Owens said. He declined to disclose the new plan sponsors.
Lastly, Fidelity’s relationship with advisers also helped spur asset growth.
“Our investment in those relationships as well as more recently third-party advisers, or TPAs, have enabled us to reach new clients and expand our portfolio,” Owens said. Owens added that the company has also expanded its offerings to smaller Roth 401(k) and 403(b) plans, which have had “good initial traction.” n
Endowments
zen $2.2 billion in the university’s contracts and grants from federal agencies as of April 15.
While a spokesperson for the Harvard Management Co. would not comment on how the $53.2 billion endowment is dealing with funding cuts, the university had announced earlier in March a hiring freeze and sales of a total $1.2 billion in municipal bonds — following suit with other Ivy League peers such as Princeton University and Columbia University. At these universities, “what you’re seeing in response is there are some cost-saving measures taking place — some budget cuts, some announcements in reducing expenditures (and) hiring freezes,” said Tim Yates, president and CEO of Commonfund’s $19.7 billion OCIO business. “You’re seeing some institutions focus on liquidity, so raising a little more cash or issuing debt.”
Private institutions — including Harvard — are already subjected to a tax policy in which those with endowments exceeding $500,000 per student have to pay a 1.4% endowment tax on their net investment income. U.S. President Donald Trump, however, through a Truth Social post on April 15 suggested removing Harvard’s tax exemption.
Proposed bills would increase the tax — with one even broadening which schools are affected — and “we don’t know how the current tax proposals will change the situation,” said Laura Wirick, managing principal and consultant at consultant Meketa Investment Group. She added that she wouldn’t want to advise any endowments to plan their asset allocation around the tax proposals at this point.
Others who work with endowments such as Robert Appling, managing director at consultant Wilshire Advisors, don’t expect to see broad changes in allocations, but universities are “beginning to think and plan for it,” he said.
One university had told Meghan Reynolds, head of capital formation and talent at the $6.8 billion venture capital rm Altimeter Capital Management, that it is budgeting for a 14% tax, she wrote in a March 8 post on X, formerly Twitter.
“You’d have to earn a higher return to offset that tax or, potentially, fundraise for it to offset it,” Yates added. “But any money that ows out to some other entity — the government, in this case — reduces an endowment’s ability to support the mission of the college or university.”
But if a university were to change its asset allocation now to address challenges in federal funding, its endowment won’t be able to generate the returns or capital it needs to spend immediately, he added. What universities may do to address po-
tential challenges from tax policy change is decrease their required spending rate.
The average annual spending rate for higher education institutions was 4.8%, according to the 2024 NACUBO-Commonfund Study of Endowments. That is up from 4.6% in 2023.
Appling said endowments for now are beginning to stress test their portfolios — and they won’t be backing down from their missions to provide educational opportunities for students who will in turn nd ways to contribute to society.
“This is not the rst period of uncertainty that endowments have faced” given the global nancial crisis, housing crisis and COVID-19 pandemic, he added. “There’s always been signi cant uncertainty over the years, and I think tax policies is just another period that we’re going through where they’re going to have to navigate some choppy waters.”
Turning to tax-ef cient vehicles
For the largest private universities, the pressure from the 1.4% endowment tax began during Donald Trump’s rst term, when he signed the Tax Cuts and Jobs Act in 2017.
During 2023, the tax on these endowments’ annual net investment income applied to between 50 and 60 institutions, Commonfund’s Yates noted.
Since then, federal lawmakers have attempted to increase the endowment tax, including one bill introduced by Vice President JD Vance in December 2023 — while he represented Ohio in the Senate — to raise the tax to 35% at the end of that year. The bill has been read twice and referred to the Senate Committee on Finance, but has not moved since that month.
Since the start of 2025 when Republicans took control of Congress, bills have been introduced with hikes ranging from 10% in a bill introduced by Rep. Mike Lawler, R-N.Y. to 21% from a bill introduced by Rep. Troy Nehls, R-Texas. Both bills have been referred to the House Committee on Ways and Means and have not moved on since their respective introductions.
But aside from increasing the tax, Lawler’s bill has proposed dropping the threshold to $200,000 per student. In effect, the tax would extend to midsized endowments between $100 million to $1 billion, increasing the number of affected private institutions to between 100 and 120, Yates noted.
“These are schools that are not nearly as nancially strong as the initial group of schools that were being taxed on top of the current headways in higher education,” said John Grif th, director at the $20.4 billion OCIO endowment specialist Hirtle Callaghan. “They will be fairly impacted by the tax no matter what the tax rate is. For the most part, those are not schools that can afford an additional expense.”
“There’s always been signi cant uncertainty over the years, and I think tax policies is just another period that we’re going through where they’re going to have to navigate some choppy waters.”
ROBERT APPLING, MANAGING DIRECTOR, WILSHIRE ADVISORS
Additionally, the threshold is not indexed to in ation, “implying that more institutions could eventually be impacted over time,” noted Michael Cagnina, senior vice president and managing director of SEI Investments’ $88.9 billion institutional business.
However, the percentage of institutions affected by the tax now — “and likely in the near future” — remains relatively low, he added.
Changes in tax policy means endowments may shift investments toward tax-ef cient vehicles such as exchange-traded funds and increase allocations to tax-exempt municipal bonds, he said. These institutions could also extend holding periods to defer gains, as well as reduce exposure to high-dividend stocks.
Turning to this “broad bucket” of investment vehicles could happen as a function of the opportunity set, but what endowments will do is weigh the tax-bene t return of those types of investments, added Wilshire’s Appling. “Meaning, we can get higher potential return or better risk reward after taxes with these other areas, like alternatives and private capital.”
Trickle-down effect for alternatives
As universities assess what levers they need to pull to generate higher returns in their endowment, there’s likely “going to be a movement into more alternatives — speci cally into more illiquid alternatives like private capital, where they’re higher expected returns,” Appling said.
In particular, endowments will see a greater shift toward private credit, which he noted a lot of them have already been leaning into due to “a lot more attractive” yield potential and risk-return potential.
Larger higher education institutions on average typically allocate more to alternative assets, with endowments with over $5 billion in assets allocating an average 64.4% of their portfolios to alternative strategies, according to the 2024 NACUBO-Commonfund survey. Private equity made up 19.6%, hedge funds made up 18.3%, private venture capital made up 14.1% and real assets
— which include real estate — made up 12.5%. Private debt — which is not included in alternative strategies category in the survey — made up 1% for endowments of this size.
Although expectations for private equity for 2025 were optimistic about more M&A and exit activity, some institutions, including the University of California’s $184 billion investment of ce, noted they don’t see transactions picking up until the end of the year. This makes the pacing of future private equity commitments more challenging, Appling noted.
Consultants told Pensions & Investments that they haven’t heard of major liquidity issues among their clients in the endowment space. As for the secondary market, while sources said the space has grown and sale of funds could allow liquidity to keep coming in, there hasn’t been much interest among endowments in new investments in secondary funds. In the NACUBO-Commonfund survey, secondaries could barely be counted among university endowments with more than $5 billion in assets.
But in extreme cases where funding for universities is unavailable, institutions may have to sell private equity holdings to the secondary market at a discounted price, noted an April 3 analysis by Markov Processes International of larger schools including the Ivy League.
These larger endowments already have signi cant allocations to private capital or illiquid investments, so they may not have the liquidity to increase exposure to more private markets, Appling said. For instance, in the most recent scal year ended June 30, private equity made up the largest asset class in Harvard’s endowment with an 38.6% allocation.
But “as you work your way down, things become more liquid for the smaller endowments,” whose heavy reliance on public equity and xed income bene ted their returns during the 2024 scal year, he added.
“You could begin to see a trickle down of that same theme, where mid and smaller endowments also increase their exposure to private capital from where it has been historically,” Appling noted.
As for tariffs, the biggest link to alternatives that Commonfund’s Yates said he sees is a decline in the stock market; private equity-oriented investments — including venture capital — would ultimately see their valuations decline three quarters into the future due to the lag effect of when they’ve valued.
“It all depends on the duration of the market decline,” Yates added. Because if the market snaps back quickly like it did when tariffs were paused on April 9, “it’s unlikely we’ll see declines in private valuations. If it’s a prolonged downturn, then it’s more likely to see declines in valuations.”
For Meketa’s Wirick, the threat of tariffs have already negatively im-
pacted public markets, but tariffs would have speci c effects on the individual underlying companies in endowments’ private markets funds as well.
With more interest from universities vs. other institutional investors, venture capital saw weak returns last year vs. other asset classes. While companies that produce climate technologies in particular recently saw lower returns, there’s uncertainty surrounding venture capital in terms of what will happen to government policy affecting the asset class, though Wirick noted that diversi cation of investments continues to be important.
Much like private equity, sources noted the venture capital industry would continue to face headwinds in 2025 from less M&A and exit activity due to uncertainty over tariffs and economic growth.
Some certainty for xed income
Wirick said universities can be certain about higher yields on xed-income investments — even though endowments have had much lower allocations to the asset class vs. other asset owners. She also noted these institutions may want to re-evaluate xed income in terms of potentially increasing their investments in the asset class.
The potential for rates “being higher for longer might be something that is helpful” for endowments’ returns, she added.
While some sources said it will be dif cult for a simple asset allocation change to offset challenges coming from funding and policy, Hirtle Callaghan’s Grif th noted some institutions might have “more room to move.” But for institutions that are being taxed now and have less than 10% of their endowments in xed income, they are “already pretty far out on the risk factor,” he said.
In the NACUBO-Commonfund study, large endowments with over $5 billion in assets had an average 7.6% allocation to xed income. As for their smaller peers with less than $50 million in assets, these endowments had an average 26.1% allocation to xed income.
“I imagine they are going to try to get a little bit more return, but I’m not sure how realistic that is,” Grifth added.
Additionally, for SEI’s Cagnina, leaning on “a more conservative approach” that emphasizes liquidity and downside protection raises questions on long-term sustainability, he noted.
In either case between leaning on private assets and xed income, “the trade-offs are signi cant,” Cagnina added.
“Few institutions possess the endowment capacity to meaningfully cover recurring operating shortfalls over an extended period,” he said. “Most are constrained by donor restrictions that limit their ability to repurpose endowment earnings." n
