Trade policy and its impact on limited partnership commitments in private equity

We examine how US public pension funds’ capital allocation to foreign private equity markets is associated with trade policy changes. By studying commitments of limited partners to private equity funds, we isolate investor responses to trade policy changes and mitigate confounds often present in corporate foreign direct investments. Using a novel data set of 1,824 foreign fund-level investments made by 129 US public pension funds between 2009 and 2022, we link institutional capital allocation to trade distortions. Consistent with tariff-jumping behavior, US public pension fund commitments are lower when US protectionist trade distortions are higher, and higher when protectionist trade distortions in the recipient country are higher. We find limited evidence that industrial policies are associated with capital allocation decisions by US public pension funds.