Exposing The Truth About Private Equity in Pensions
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- Опубліковано 3 лис 2023
- You may not be familiar with private equity funds, but there’s a good chance you own some in your pension. That's a problem because these funds tend to sweep a lot of risk under the carpet and at the moment they may be harbouring some big losses.
In this video, we’ll look at why some pension funds choose to invest in private equity funds, despite their high fees, and why their returns may be lower in the future.
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DISCLAIMER
All information is given for educational purposes and is not financial advice. Ramin does not provide recommendations and is not responsible for investment actions taken by viewers. Figures that are quoted refer to the past and past performance is not a reliable indicator of future results.
I love that these videos are technical. There is lots of light high level investing media available elsewhere, but these deep dives are a huge value driver for your channel. Your explanations are very clear - no need to dumb them down!
Doesn’t sound like private equity should be anywhere near a pension, did you really say fees of 7.9%. Wow.
At that point, you might as well open up an SIPP and invest in various diversified index funds.
When in doubt, just stick with Vanguard funds. Look at the stuff they hold in their target date funds and see if your work offers something similar. My work does, so it's what I stick with. None of these private equity fees on fees nonsense.
Great topic, that isn't covered often
Thank you @Ray-xj1dc
Great video - I personally find you explain complex subjects very well and have given me confidence to invest with a bit more knowledge. 🙂
Glad it was helpful! @markb80
I managed to get my aviva pension which my job pays into to select a global equity fund.
When people look at their work place pension, it's often easy just to pick what they chose for you when it was set up (which for me had high fees) but it (maybe) helpful to swap to a low fee index
Just waiting for my local council to go all in on private equity to match their investments in commercial real estate.
3:14 - 45% Allocation to the UK! (compared to 4% MSCI World) 11 Times Overweight! - Home Bias in action.
This makes vanguard life strategy look diversified.
I would not want my pension invested in this.
It's not as bonkers as it first appears. Much of that will be UK government debt. If you are a DB pension provider with liabilities valued in GBP holding gilts makes sense.
Great video.
Even passive index mutual funds linked to my pension has fees upto 2%.
Many thanks for another excellent video. I think your channel is quite exceptional in this space as it covers a wider array of interesting topics and does not stay at the "you should buy a FTSE All world ETF" level.
Since you mentioned your USS pension: I would be very interested in hearing why you kept it and not put it into a SIPP. I am facing that decision as well.
👍👍Thanks. I've opted out of my works pension fund for just the reasons you mentioned. Better to invest in an open-to-see diverse company like Berkshire Hathway, or in an clearly defined index/ tracker ETF, than in a circular daisy-chain of confusing concealment, buck-passing anonymity and convenient accounting?? 👍👍
Thanks for this very interesting insight Ramin - thanks for sharing. Resampling of curve data....guilty by omission. I can see how this would be a temptation in the very conservative and risk averse sphere of workplace pensions but it really is creating an illusion. The fees are making much more sense now in that they support what is in essence a PR mechanism. At least now we know what kinds of curve patterns and language to be wary of. Your podcasts strike a good balance between information and education. Please keep it that way.
Despite all the drawbacks, the graph shown at 11:15 and 12:05 still makes private equity really appealing. Feels like allocating around 5% or having some in your fun portfolio might still be worth a shot?
Agree with this - perhaps a little too cynical to think that endowments like Yale and Harvard which have gone heavy on PE are doing it simply for lower volatility (esp. for groups like Yale which are famous for outperforming with their alternatives strategy)
This is a huge issue in Australia with superannuation funds. Some of the biggest and most popular funds have a huge percentage of savers money in unlisted assets. This is going to be a risk for the younger members as retired members draw down and the funds sell liquid assets to cover the outgoings while lumbering younger members with illiquid assets with fake valuations. Potentially a huge financial scandal for the future if it all goes wrong due to fund mismanagement.
USS may not have as much private equity/debt as you think. Private Markets also consists of Real Assets (Real Estate and Infrastructure).
If you compare with CalPers, they split out private markets into its sub categories of Private Equity / real assets.
Hope that helps!
Again, outstanding video as always
Glad you enjoyed it @TheDailydubstepfeed
I like this vid. Good insight and interesting.
Glad you enjoyed it! @gerry2345
This was useful. I have £III in my ISA.
This was excellent and is going to make me scrutinise my current ISA and SIPP holdings. "Fees on fees". Nice. Basically, when you hear the expression "Private Equity", think Dragon's Den. It's **that** serious, and the valuations are no doubt even more dodgy and imaginary.
Illiquid assets can't be valued accurately: PE, property, small caps, emerging markets, frontier markets, high yield corporate debt.
It is crazy that private equity funds charge 5x or more fees than a simple bond or stock index fund. It's like the fee eats up the entire bonus that you get from private equity.
Rarely covered anywhere. It's obvious why!
Hi find all your videos very informative/ educational. Could you do a video comparing global REITS showing there performance/ diversity/ the fees for owning each one and which you’d go for
The "smoothing" sounds suspiciously like old-school With Profits funds...
In managing a pension fund/scheme you’re concern is ensuring the benefit, all the rest is noise, and volatility is noise, these are very long term arrangements, well beyond the life of any one individual, so smoothing the fund total return or better a particular investment returns matches what the pension fund is attempting to realize generational equity balanced by ensuring people pay as close to the cost for their particular benefit. So market to market doesn’t work, it may work for an individual investor but for the group that is constantly in flux , retiring/hiring, focusing on what happened this year or this quarter misses the mark. Pension plans exist to pay a benefit, they are not investment funds that pay benefits, though many of their investment staff or managers don’t always get that point.
Having said all that if it’s a lousy investment it’s a lousy investment and no amount of smoothing will save it.
Great video on an interesting subject. Thanks as ever, Ramin. Seems like the window of supervision into the PE funds will be at the very best translucent. Lots of question marks. I wouldn't touch with a barge pole with the recent interest rate shifts.
Thanks @JohanTetzel
Excellent
Thank you so much 😀@musyclover
The only area where the private equity approach is valid is for real estate as it simply is difficult to sell a home quickly like selling a stock, therefore, REIT stocks are actually not indicative of the actual value of real estate. This is something that private equity captures better, even if it means preventing selling at a certain rate.
Hey Ramin, great video as always. I'm just curious as to what software you use to generate the graphs you make with the black background (such as the one at 12:05). Is it bloomberg?
Hi @somecurtains_9875 I use the ggplot2 package in R for my plots and a variety of data sources and these are listed in the description of the video
Fca worried about private equity in pension funds…while the government is busy shoehorning LTAFs in to the market…🤦♂️
The drive for exotic investments and the marketing around it is scary.
There’ll be a liquidity issue that will blow up at some point
Yes! With interest rates at their current levels, probably in a couple of weeks or so. It's about time we had a new colossal worldwide investment collapse ... followed by scandal, recrimination, all the usual.
In the GFC some fell 85%.
Here before this hits 100,000 views
My workplace DB pension fund annual report is 168 pages long. Where the fund is invested is extremely complicated. But it's the fund of one our 4 big market making trading banks so I trust them to know what they are doing. Not that I have any influence on their investment decisions.
Even given that they know what they are doing, it is possible they would take an action for their own interest at your expense.
You should look at the funds factsheet rather than the annual report.
There is a reason PE firms have very rich partners on payroll, because mugs pay high fees.
The big mistake is equating volatility and risk. These are two different factors. It's lazy thinking on behalf for the finance industry to confuse these two.
Lol this is proper cfa content in real life
Thank you @caolan640
Your videos are not technical and not difficult to understand at all, relative to other channels outside the UK.
Thanks @theguy9067