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EQT Partners Private equity company logo seen displayed on a smartphone. Photo: Igor Golovniov/SOPA Images/LightRocket via Getty Images

Managers of the trillions of dollars in retirement investment for teachers, firefighters and other government workers in the U.S. and U.K. doubled down on private equity in 2018. The asset class accounted for 27% of public pension fund allocations last year, data from eVestment provided to Axios shows.

Why it matters: What is essentially public money is now being invested at higher levels than ever in private equity at a time when the asset class may be in for trouble.

  • Private equity significantly outperformed public equities in recent years, delivering 25% returns before fees compared to just under 15% for traditional equities between 2010 and 2016.
  • But deals are starting to dry up right as managers are seeing a flood of fresh capital.
  • "Private equity has performed well relative to other investments and the pension industry tends to chase returns, often to its own detriment," Tina Byles Williams, CEO and CIO of FIS Group and a former chief investor for the City of Philadelphia's pension system, tells Axios.
Expand chart
Data: eVestment; Chart: Andrew Witherspoon/Axios

By the numbers: Public pension plans announced 954 new private equity mandate awards — essentially buys or allocations to new assets — for 2018. This put private equity investments in the No. 1 spot for new allocations among these public pensions last year.

Watch out: More private equity managers are holding onto more cash than ever before, and are having to pay more for deals because of increased competition, often diluting returns and leading managers to take riskier bets.

The bottom line: "You have to think, 'Are there enough deals to profitably invest that level of dry powder?'" Byles Williams said. "I don’t know the answer to that question, but I would be skeptical."

Go deeper: How teachers' pensions fund immigrant prisons

Go deeper

4 hours ago - World

Maximum pressure campaign escalates with Fakhrizadeh killing

Photo: Fars News Agency via AP

The assassination of Mohsen Fakhrizadeh, the architect of Iran’s military nuclear program, is a new height in the maximum pressure campaign led by the Trump administration and the Netanyahu government against Iran.

Why it matters: It exceeds the capture of the Iranian nuclear archives by the Mossad, and the sabotage in the advanced centrifuge facility in Natanz.

Scoop: Biden weighs retired General Lloyd Austin for Pentagon chief

Lloyd Austin testifying before Congress in 2015. Photo: Chip Somodevilla/Getty Images

Joe Biden is considering retired four-star General Lloyd Austin as his nominee for defense secretary, adding him to a shortlist that includes Jeh Johnson, Tammy Duckworth and Michele Flournoy, two sources with direct knowledge of the decision-making tell Axios.

Why it matters: A nominee for Pentagon chief was noticeably absent when the president-elect rolled out his national security team Tuesday. Flournoy had been widely seen as the likely pick, but Axios is told other factors — race, experience, Biden's comfort level — have come into play.

Updated 6 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Health: WHO: AstraZeneca vaccine must be evaluated on "more than a press release."
  2. Politics: Supreme Court backs religious groups on New York COVID restrictions.
  3. World: Thailand, Philippines sign deal with AstraZeneca for vaccine.
  4. Economy: Safety nets to disappear in December Black Friday shopping across the U.S., in photosAmazon hires 1,400 workers a day throughout pandemic.
  5. Education: National standardized tests delayed until 2022.