Market Insights] US Pension CIOs on Private Markets

Executive Summary

Three major U.S. public pension CIOs—representing Texas Municipal Retirement System, State of Wisconsin Investment Board, and New York City Retirement Systems—described their current investment landscape as one of significant market volatility but long-term opportunity. While they acknowledge short-term geopolitical and macro uncertainty, all emphasize a strategic, long-term approach to allocation, with a specific focus on increasing or sustaining substantial private markets exposure. They are leveraging size and scale for favorable co-investment terms and remain disciplined regarding fees, while noting that future private equity returns will likely be lower than those seen in the last decade. Their overall positioning is balanced across asset types, with natural inflation hedges and a search for select opportunities in real assets and infrastructure, both in the U.S. and internationally. Cash allocations remain minimal despite current yields, and each CIO confirmed the need for consistency, opportunistic execution, and careful manager selection in navigating the evolving investment environment.

Market Volatility and Risk Outlook

• All three CIOs report that while market volatility has increased, their risk outlook remains fundamentally unchanged, due to a strategic and long-term focus.
• Allocations are managed with a barbell approach: higher private market exposure enables them to ride out public market volatility, while public allocations are actively managed to respond nimbly to short-term market movements.

Private Markets and Strategic Allocation

• NYC is raising its private asset allocation from 25% to 35%, reflecting legislative changes and a belief that now is an opportune time for private markets despite recent underperformance and liquidity constraints in the broader market.
• Wisconsin's portfolio is on a similar path, targeting 35% in private assets and emphasizing the long-term visibility these investments provide.
• Co-investments are increasingly important: both NYC and Wisconsin have large (~20% or higher) co-investment stakes within their private portfolios, leading to significantly higher net returns due to reduced or eliminated fees.

Fees, Negotiations, and Manager Selection

• All panelists are intensely focused on net returns and fee discipline, actively negotiating better terms and co-investment economics.
• There's a recognition that the last 15 years of private equity, characterized by multiple expansion and cheap debt, will not be easily repeated, demanding greater scrutiny on fees and manager quality going forward.

Geographic and Asset Class Diversification

• The CIOs agree that U.S. markets maintain structural advantages (size, liquidity, legal framework), but they also see compelling relative value in Europe and Asia due to cheaper valuations, especially in public equities.
• Geographic diversity is viewed as a valid portfolio diversifier, especially longer term.
• Real assets (e.g., senior housing, industrial development, infrastructure, data centers) are particular areas of new opportunity, both in the U.S. and Europe.

Inflation, Cash, and Portfolio Construction

• Views on inflation hedging differ: some hold significant TIPS allocations, while others prefer real assets, citing TIPS’ duration risk and limited inflation beta.
• All maintain minimal cash allocations (<1%), with one fund employing portfolio leverage (~13%) to boost returns, balancing this with larger fixed income exposures.
• The CIOs rebalance regularly and focus on maintaining strategic target allocations, seeing cash as a drag relative to long-term return expectations.

Current Challenges and Opportunities

• The panelists uniformly describe their roles as challenging and increasingly complex, but also deeply meaningful and full of long-term opportunity.
• They believe selective, consistent deployment of capital—especially to high-conviction managers and diversified private exposures—will be key to delivering future returns in an environment where past tailwinds may no longer be present.

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