UNITED STATES - California State Teachers Retirement System has begun the process for eventually placing around $1bn (€644.m) of capital in infrastructure investments.
A policy paper was presented at the pension fund's board meeting on June 4 which will lead to further discussion by the investors at its July 10 board meeting before possible implementation of its infrastructure strategy in early September.
CalSTRS' officials believe infrastructure could produce solid long-term investment returns and produce another layer of diversification for its entire portfolio so infrastructure could be placed as an allocation to the pension fund's fixed income class.
That said, this is just an initial discovery so it is possible infrastructure could have its own asset class in the future.
CalSTRS will be working with its general investment consultant, Pension Consulting Alliance, on its infrastructure investments for now though it is understood this could change in the future.
The types of assets CalSTRS may consider is varied but could include bridges, railways or toll roads as well as other facilities such as healthcare and judicial buildings.
The markets where CalSTRS could investin infrastructure are still open for discussion as the United States is considered more as an emerging market for infrastructure. The countries with more years of experience with taking infrastructure investments are Canada, Australia and the United Kingdom.
CalSTRS is likely to make the investments through separate accounts rather than commingled funds and managers of these accounts are likely to be required to make a co-investment commitment to the account.
The pension fund is looking at both a core and value-added strategies for infrastructure, to achieve a possible core return of 5% and 7% real return for value-added.
Leverage on the value-added transactions would be up to 75%.
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