Researcher ORCID Identifier
0009-0009-0084-5226
Graduation Year
2025
Date of Submission
12-2025
Document Type
Open Access Senior Thesis
Degree Name
Bachelor of Arts
Department
Economics
Reader 1
Peter Kelly
Terms of Use & License Information
Rights Information
2025 Rutvij J Thakkar
Abstract
U.S. public pension systems have increasingly adopted the "Yale Model," shifting assets under management into private equity to capture excess returns. However, the valuation asymmetry between marked-to-market public equities and smoothed private net asset values creates a mechanical denominator effect during market downturns. This thesis quantifies this passive allocation drift using a fixed-effects panel regression of 2,706 observations from 182 U.S. public pension plans between 2005 and 2024. I find that a 10 percentage point decline in public equity returns mechanically increases private equity allocation by 50.5 basis points, an effect that amplifies to 55 basis points during systemic crises. While underfunded plans exhibit evidence of active rebalancing to mitigate this drift, the majority of plans display significant inertness. Crucially, I document a nonlinear inertness amplification, wherein plans with high existing private equity exposure experience nearly double the passive overweighting during shocks compared to their peers. These findings suggest that the structural rigidity of private assets transforms volatility into concentration risk, forcing pensions into liquidity-constrained positions when capital is most needed.
Recommended Citation
Thakkar, Rutvij, "Sticky Valuations, Systemic Risks: Quantifying the Denominator Effect of Private Equity Holdings in U.S. Public Pensions" (2025). CMC Senior Theses. 4264.
https://scholarship.claremont.edu/cmc_theses/4264
