By Clark B. Hoover, CFA

A recurring question for institutional investors is whether to scale commitments to private markets up or down based on market cycles—investing more when conditions look favorable and pulling back when fundraising is “hot.” It’s intuitive: if everyone else is piling in, maybe it’s time to pause.

A widely-cited study published in the Journal of Financial Economics (Brown, Harris, Hu, Jenkinson, Kaplan, and Robinson, 2021) put this idea to a rigorous, decades-long test using data on over 3,500 private equity funds going back to 1987.

The findings are sobering for anyone tempted to time the market. While periods of heavy fundraising are indeed followed by weaker performance, the researchers found that realistic, implementable strategies to capitalize on this pattern delivered only modest benefits—far short of what theoretical “perfect foresight” strategies might suggest.

Why? Because investors only control when they commit capital to a fund, not when that capital actually gets invested or returned. Those decisions belong to the fund manager. As a result, even dramatically different commitment strategies ended up producing remarkably similar cash flow patterns over time, since fund managers across the industry tend to invest and exit in response to the same broad market conditions.

Perhaps most strikingly, the study found that simply skipping investment years entirely (a more extreme version of “timing”) provided only modest performance improvements, and only when investors were willing to sit out a very large share of all years. Anything short of that extreme had little impact. By contrast, strategies focused on manager selection—favoring more experienced general partners and larger funds—showed more meaningful and consistent performance benefits, particularly in venture capital.

What This Means for Private Credit

For a pension plan thinking about pacing in private credit, which shares many of the same structural features as private equity (committed but undrawn capital, manager-controlled timing of deployment, limited investor control over cash flows), this research offers a useful caution. Slowing or pausing commitments in response to short-term market sentiment is unlikely to meaningfully reduce risk or improve returns, and it carries a real cost: it can disrupt long-term relationships with high-quality managers and create gaps in vintage-year diversification that are difficult to rebuild.

The Temptation to Act

Investing is a humbling experience, and it’s often difficult to distinguish the signal from the noise. When headlines turn scary, the temptation to pull back can feel like prudence, even when the evidence suggests otherwise. Human nature often tells us that taking action feels better than taking no action at all.

Legendary UCLA basketball coach John Wooden frequently said, “Don’t mistake activity for achievement.” He likely wasn’t speaking about investment portfolios, but there’s wisdom there for all of us engaged in institutional investing on behalf of public employees who depend on us to generate the returns necessary to support them and their families in retirement.

The more durable path to strong performance appears to be steady, disciplined commitment pacing paired with careful manager selection—not reactive shifts driven by market headlines.

The opinions expressed are the author’s personal views and may differ from those held by his employer or other organizations with which he is, or has been, affiliated.