May 2014, Eileen Appelbaum and Rosemary Batt

Private equity draws on financial commitments from large institutional investors and wealthy individuals for its investment funds. Pension funds are the industry’s biggest investors and supply 35 percent of the capital committed to PE funds. On the advice of high-paid consultants and advisors, private equity investors commit a minimum of $10 million to a private equity fund and often much more. Our analysis of PitchBook data finds that the current allocation to private equity of the top 32 pension fund investors averages $7.9 billion each. At these levels of investment, it is usually assumed that investors are sophisticated players in financial markets who are not intimidated by numbers, not easily fooled by pitches for too-good-to-be-true investment opportunities, and, unlike naïve retail investors, too savvy to rush into investments at market peaks. But are they?

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