Wisconsin, Texas, NYC CIOs See Private Markets Shift Ahead

In Brief

Bloomberg's Romaine Bostick interviewed three pension fund CIOs - Anne-Marie Fink (Wisconsin), Yup Kim (Texas), and Steven Meier (NYC) - about their investment approaches across public and private markets during the Bloomberg Invest conference, exploring how they're navigating current market volatility while maintaining long-term strategic focuses. All three indicated that despite headwinds in private equity, they're continuing to allocate significantly to private markets while expecting more modest returns compared to the past decade.

Big Picture Drivers

U.S. advantage: All three CIOs expressed confidence in long-term U.S. outperformance due to academic institutions, entrepreneurial culture, deep capital markets, and energy access.
Fee sensitivity: The panel emphasized growing scrutiny of management fees in private markets as expected returns moderate from historical levels.
Private vs. public: CIOs consistently favored private markets for long-term outperformance, with allocations increasing despite recent headwinds in the private equity space.
Inflation preparedness: The funds are utilizing real assets and equity exposure rather than making tactical shifts to address potential inflation concerns.

Key Topics Covered

Portfolio construction: Wisconsin uses a barbell approach with 30% in private markets (moving toward 35%) balanced with nimble public market managers; NYC is increasing alternatives from 25% to 35%.
Co-investments: All three funds heavily utilize co-investments (direct deals alongside GPs) to reduce fees and enhance returns, with Wisconsin reporting co-investments represent nearly 20% of their private portfolio.
Geographic diversity: While acknowledging U.S. strengths, the CIOs maintain global exposure, noting better valuations in European and Asian markets despite structural challenges.
Cash management: Approaches vary dramatically - NYC maintains minimal cash (under 0.5%), Texas holds nominal amounts, while Wisconsin actually employs 13% portfolio leverage to enhance returns.

Key Insights

Changing landscape: The panel agreed private equity's next decade will likely generate lower returns than the previous one as multiple expansion and cheap debt tailwinds fade.
Manager negotiation: Despite their size, CIOs noted challenges getting favorable terms from general partners who "divide and conquer" limited partners during fundraising.
Alpha opportunities: Kim highlighted that current market volatility creates significant alpha generation potential for skilled investors who can navigate policy shifts affecting different sectors.
Strategic focus: All three emphasized maintaining disciplined long-term positioning rather than reacting to short-term volatility or political rhetoric.

By The Numbers

Scale: New York City manages $294 billion supporting 800,000 pension beneficiaries and participants.
Portfolio construction: Wisconsin has approximately 30% in private markets (heading to 35%) and employs 13% leverage across their portfolio.
Co-investments: Wisconsin's co-investment book represents nearly 20% of their private equity and credit portfolios, while their real estate is approximately 50% in joint ventures or co-investments.

Memorable Quotes

"The next 10 to 15 years, I don't think are going to be as good as the last 10 to 15 years in private equity." - Anne-Marie Fink on changing return expectations
"I think it's a great time to be putting money to work. We were able to get better access to the top decile performers to get size and scale, to negotiate better terms." - Steven Meier on timing private market investments
"I think the opportunity for Alpha in the next 12 to 18 months is tremendous." - Yup Kim on private market opportunities amid volatility

The Wrap

These institutional investors are navigating an increasingly complex market landscape by maintaining strategic discipline while selectively seeking alpha opportunities. Despite acknowledging headwinds in both public and private markets, they remain confident in their ability to generate returns through manager selection, co-investments, and strategic asset allocation, with a continued belief in long-term U.S. market outperformance despite near-term volatility.