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Venture returns hurt UK local authority pension fund performances

UK local authority pension funds suffered a second successive year of negative returns in the year to end March 2002 and have laid some of the blame on their venture capital investments.

Longer term, however, the evidence still suggests they are adequately rewarded for the associated risks of private equity investment, according to new figures from performance measurement specialists the WM Company.

Overall, local authority pension funds averaged returns of negative 0.5 per cent in the last financial year, compared with negative 6.3 per cent in the preceding year. The three-year performance of funds has now fallen below inflation, producing an average return of just two per cent.

Venture capital and private equity assets produced a return of negative 14.7 per cent in the latest year after strong performances in the three preceding years. But despite the disappointing result, WM Executive Director Karen Thrumble said private equity returns had delivered sufficiently good returns to justify the risk of the asset class.

‘This figure is a painful illustration of the risks that come with the territory for this type of investment. However, over the long term the evidence is that investors are adequately rewarded for the risks they take,' she said. WM estimates that local authority pension funds have about 0.9 per cent of their assets in private equity.

WM's survey is made up of 93 funds valued at £85bn.

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