The Shifting Landscape of Private Equity & Pension Investments

Policymakers in the US, UK, and Europe are pushing pension funds towards private markets — such as private equity, credit, and infrastructure — aiming to boost economic growth and retiree incomes, though these investments carry higher risks.

Private equity’s historic outperformance, largely driven by low interest rates and leverage, is under pressure as rates rise, leading managers to adopt tactics like internal lending and dividend extractions.

In France, many private equity-owned companies are heavily indebted due to leveraged buyouts and pandemic-era loans, contributing to record-high bankruptcies. New insolvency laws make it easier for hedge funds to force restructurings and buy distressed debt at attractive levels.

Meanwhile, the IPO market for private equity exits has almost frozen, with only nine PE-backed IPOs so far this year compared to 116 in the same period in 2021. Firms are now prioritizing business break-ups, minority stake sales, and continuation funds to return capital to investors.

Overall, the private markets landscape is shifting: pension funds are being nudged towards alternative assets, while private equity adapts to higher rates, a closed IPO window, and new distressed investment opportunities.

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