Connecticut's Private Equity Returned 6.5% Against an 18.8% Benchmark

What's New

Connecticut's private equity program returned 6.5% over three years. Its policy benchmark, Russell 3000 plus 250 basis points, returned 18.8% over the same period. The plan's private equity strategic review answers that the comparison "highlights the challenges of measuring the short-term performance of a longer-term asset class to a public market index." The program also trailed the Hamilton Lane All PE benchmark at three and 10 years. It outperformed that private benchmark at five.

Why It Matters

Trustees who approved a public-market-plus benchmark now have three years of results against it. The defense offered is that the benchmark suits the asset class poorly over short horizons. That argument is sound and also convenient, and it arrives alongside a $2.7 billion annual pacing plan. Plans using similar benchmark constructions will face the same question at their own reviews.

By The Numbers

• 12.9% private equity return over 10 years, against 14.3% for the policy benchmark.

• 8.7% over five years, against 7.6% for the Hamilton Lane All PE benchmark.

• 17% of NAV in sub-strategies the Hamilton Lane benchmark does not include.

• 12% of the plan in private equity, against a 15% target it intends to keep.

Between The Lines

The benchmark complaint carries weight here. Russell 3000 plus 250 basis points measures a private portfolio against a public index across a period when public equity ran hard. Connecticut's own fiscal year data shows domestic equity returning 23.8%. Almost any private program would trail that on a three-year view. The review does not address what happens if the gap persists across a full cycle, because the premium is the reason the allocation exists.

The Wrap

The plan is asking its board to judge private equity against private peers and to treat the public-market benchmark as a poor short-horizon measure. That position is defensible on three years of data and harder to hold on 10, where the program trails both benchmarks. Its buyout book outperformed private peers at three, five and 10 years, so the drag comes from venture and from timing. The next reporting cycle will show whether the five-year improvement extends.