Conference Agenda

U.S. public pension funds are long-horizon investors with predictable liability structures. As such, they are often perceived as contrarian investors who can absorb supply shocks and stabilize markets. However, they increasingly face negative net operating cash flows as benefit payments exceed contributions. Using aggregate pension fund data combined with granular holdings obtained through public records requests, we document three findings that challenge the conventional view of U.S. pension funds as stabilizing investors. First, pension funds with more negative cash flows do not incorporate this factor into their target asset allocation and maintain low allocation to safer or more liquid assets. Second, because of these limited liquidity buffers, pension funds meet cash flow shocks primarily by selling equities rather than drawing on liquid assets. Pension funds absorb $0.67 per dollar of shock through equity sales. At the security level, pension funds sell across equities and do not follow a liquid-assets-first approach. Third, these equity sales occur even during periods of negative equity returns, indicating they are driven by cash flow needs rather than portfolio rebalancing considerations. Together, these findings show that pension funds have become regular sellers in equity markets rather than contrarian, stabilizing investors.

Continuation funds (CFs) are a recent financial innovation in which PE managers raise new funds to purchase assets from their existing funds. CFs have surged in popularity, accounting for 9% of PE exits in 2024 and raising twice as much as US IPOs. We show that CFs emerge when LPs are more heterogeneous and fund managers have earned carried interest in legacy funds. Assets transferred to CFs are better performing and larger than other assets in legacy funds. LPs overwhelmingly choose to exit rather than invest in CFs, the decision that appears to be driven by time-varying LP liquidity demands.

I study how capital commitments affect the resilience of private debt funds’ lending during crises by comparing private and public Business Development Companies (BDCs) during the COVID-19 shock. Using borrower-level regressions with firm-quarter fixed effects, I find that, in comparison to public BDCs, private BDCs sustained lending, providing about 7%, or $1.2 million, more credit to the same firm. My findings show that pre-committed capital, rather than liquidity buffers, shields private BDCs from financing frictions and enables them to maintain their credit supply when market-based funding is impaired. The results highlight how funding structures shape the cyclicality of non-bank credit.