UNITED STATES - California Public Employees Retirement System has approved a pilot program to invest up to $1.5bn (€1.44bn) in infrastructure on a global basis.
CalPERS does have some exposure to infrastructure through commingled funds and has acquired assets worth $539m in this real estate sector, but the pension fund decided at its investment committee board meeting on September 10 to expand that coverage, according to CalPERS Board president Bob Feckner.
"We hope to generate stable, attractive investment returns with low to moderate risk as we deploy capital to meet a reported need of $1.6trn for US infrastructure projects over the next five years" said Feckner.
This infrastructure component would be placed in a new inflation-linked asset class alongside commodities, inflation-linked bonds and timber.
There are several kinds of investment structures CalPERS will consider for its pilot program including domestic and international indirect commingled funds and co-investments as well as projects focused on California infrastructure.
That said, CalPERS is pursuing an international investment strategy too and it is also seeking investment opportunities in the construction of roads, bridges, airports, utilities and water systems, to achieve a net return meeting or exceeding the Consumer Price Index by at least 500 basis points.
It is expected the infrastructure program will reach "permanent status level" by June 2008 so will be staffed by a senior portfolio manager, portfolio manager and office technician.
The pension fund's decision to move further into infrastructure comes at an interesting time as Standard & Poor's last week warned investors will need to look carefully at infrastructure purchases and their financing deals, to ensure the creditworthiness and covenants of such companies is strong enough. ( See earlier IPE Real Estate story: Slack debt undermines safe infrastructure)
Aside from the development of its infrastructure program, CalPERS has also handed Standard Life Investments Private Equity (SLIPE) - soon to become Standard Life Capital Partners Ltd - a €400m European private equity mandate, to be invested in the ESP Golden Bear Europe fund.