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US pension allocates 10% to alternatives

The Pension Benefit Guaranty Corporation is seeking up to three private equity and real estate advisors to manage its new $5.5bn alternatives ‘pot’. The pension fund, which represents 44 million US citizens, is branching out into alternatives in a bid to reduce its $14bn deficit.

The US federal pension protection plan, the Pension Benefit Guaranty Corporation, is allocating up to $5.5 billion (€3.5 billion) to private equity and real estate in an effort to reduce its $14 billion deficit.

The $67 billion fund, which protects the pensions of more than 44 million US workers and pensioners across 30,000 private retirement plans, has issued a request for proposals for up to three private equity and real estate managers to manage around $2.5 billion of the allocation pot.

In a statement, PBGC director Charles Millard said the fund was looking for advisors to “beef” up its own investment team and help the US pension “mitigate risk.”

PBGC reported a $14 billion deficit at the end of 2007, down from $18 billion during 2006. As part of the pension fund’s bid to further reduce the shortfall, PBGC announced, earlier this year, it would allocate up to 10 percent to private equity and real estate, a total of about $5.5 billion. The fund said 45 percent would be allocated to fixed-income investments and 45 percent to equities. Millard added in the statement this week that by expanding into alternatives, PBGC was seeking to “build capacity to better oversee our portfolio.”

According to the RTP, PBGC will hold a bidders conference on Wednesday. The contract, the pension said, would not necessarily be a single “strategic partnership” for private equity and/or real estate and could last for up to 10 years.