Former CalPERS trustee Dana Hollinger, writing with Jackson Eisenpresser, tells pension fund managers to begin with making sure they have enough liquidity for their projected payouts, and then think about alpha.

Private-market returns have never been more critical in meeting future liabilities. The yield must come from real assets, infrastructure, and private credit and extending the hold period for private equity. 

To do this, fund managers must first link cash outflows with cash inflows. 

There is $3 trillion in the private-equity markets. Investors around the world are increasing their allocations to private equity. Preqin estimated that there is a record $2 trillion in “dry powder,” or unspent money, in private funds globally, with over $1.2 trillion of that total $2 trillion being earmarked for private equity.

The average hold period for a buyout investment in private equity is about five years. If we are invested in good companies with solid cash flows why should we sell?

Increasing the hold period plays a vitally important role in promoting long-term capital formation, which can insure a growing and vibrant economy. Funds must maintain the option of keeping solid income producing assets while at the same time eliminating excessive transaction fees. We will have more on this in a future article.

And so linking income-producing assets and pension contributions with projected outflows over a four-year period provides the investing discipline for pension funds to both meet their obligations and then take the prudent risks necessary to invest in private markets — these are the risks necessary to afford pensioners the surety of each month’s check. 

via How Pension Funds Can Survive Volatile Markets | Newsmax.com