Majority of pension funds juggle overallocation to private equity

About 62% of global pension funds exceeded their private equity allocation targets at the end of June, according to S&P Global Market Intelligence data.

The median actual allocation across 294 pension funds was $339.8 million, compared to a target allocation of $312.0 million.

The California State Teachers' Retirement System exceeded its private equity allocation by the highest amount. Its actual allocation of $55.10 billion was $8.70 billion above its target. The Teacher Retirement System of Texas followed with an actual allocation of $32.65 billion, $6.08 billion over target.

One factor behind overallocation is the lack of private equity exits, which have created liquidity issues for LPs. Exits, which provide cash distributions back to investors, fell to a two-year low in value and volume in the first quarter. Private equity has also been holding buyout acquisitions longer, and new deals have been muted despite $2.5 trillion in capital raised but not yet deployed.

"The anemic distribution environment has contributed to the overallocation of some pensions," Sheila Ryan, partner, pension practice at investment manager Cambridge Associates LLC, wrote in an emailed statement. "[W]ith fewer distributions and longer times needed to monetize a portfolio, pensions will have to respond by lowering overall commitment budgets and potentially tapping into the secondary market to lower exposures."

– Download a spreadsheet with data featured in this story. – Read about global private equity deal value in H1 2025. – Read about global rounds of funding in H1 2025.

Another contributor to overallocation is the denominator effect, the result of declining public market valuations, which inflates the proportion of private assets in pension portfolios, according to Shahan Sarkissian, co-founder of private equity firm Tioopo Capital.

"While this is primarily a mechanical shift, it does impact strategy," Sarkissian wrote in an emailed statement. "Many pensions are now pacing new commitments more cautiously or even pausing temporarily to stay within policy limits."

Flight to quality

Sarkissian said pension funds are increasingly focusing their commitments on fewer, more experienced managers while extending due diligence processes. "LPs are now ensuring aligned interests with the funds that they invest in, which could mean lower fees or a higher commitment amount from the GPs."

Pension funds are also pressuring private equity managers to focus on operational improvement of portfolio companies rather than just financial engineering, added Andrejka Bernatova, founder and managing partner of private equity firm Regen Capital Partners.

This shift reflects a desire for GPs to optimize investments and ensure timely exits, as LPs question why certain exits were not pursued earlier. Overall, LPs are seeking GPs who can provide tangible value and industry expertise throughout the investment lifecycle, Bernatova said.

Under allocation

Among the most under-allocated pension funds, Mexico-based Afore XXI SA de CV had the largest shortfall, with its actual allocation of $2.97 billion being $8.91 billion short of its $11.89 billion target.

Sweden's Sjunde AP-fonden followed closely with a target allocation of $13.65 billion and an actual allocation of $5.46 billion, leading to a net allocation of negative $8.19 billion. In the US, the New Jersey Division of Investment had a target allocation of $13.01 billion and an actual allocation of $7.76 billion, resulting in a net allocation of negative $5.25 billion.

Largest allocation

The California Public Employees' Retirement System had the highest actual allocation to private equity at $92.26 billion, which was slightly below its target of $93.25 billion.