Public equity markets are becoming much riskier than private equity with flash crashes and higher volatility, according to Greater Manchester Pension Fund (GMPF) investment manager Neil Cooper.
Speaking on a private equity panel at the National Association of Pension Funds (NAPF) annual conference last week, Cooper said while the asset class is "clearly risky", on a relative basis it is becoming "less risky than public markets".
Public markets are getting "horribly risky", with "absolutely crazy things" going on in terms of flash crashes, and "very high levels of volatility" driven by things like algorithmic trading, he said. There is also a "reasonable perception" that there is a lot of short termism.
While investors can be put off private equity because they are concerned by illiquidity, it allows them to take a much longer term investment horizon.
"In the private markets because there's capital certainty which is then reflected in illiquidity, you can take a longer term view in developing companies," he said.
He added: "The deployment strategy of general partners is actually a good risk mitigant because rather than just throwing all the money into the market in one go, typically they will invest in anything over two to five years."
The pension fund, which has invested in private equity over the last four decades, currently invests around £750m which is equal to around 5% of its total asset allocation.
Cooper said the asset class only really becomes an issue for pension funds when they allocate a large amount to it, and that they can invest up to 5% without creating the potential for issues with liquidity.
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