CalPERS sets infrastructure allocation

The US’s largest public pension fund aims to invest 3 percent of its portfolio, or roughly $8.3bn, in infrastructure over the next two years.

The California Public Employees’ Retirement System has after months of delay settled on a target allocation for its infrastructure investment programme, aiming to invest 3 percent of its assets, currently equivalent to $8.2 billion (€5.5 billion), over the next two years.

The infrastructure bucket falls within CalPERS’ inflation-linked asset class, the creation of which it announced in September 2007 and initiated by Russell Read, who recently gave up his chief investment officer role to launch an environmentally-focused investment firm.

In February 2008, the US pension set targets for the other subsets of the newly created asset allocation – commodities, timber and bonds – but had delayed defining its policy for infrastructure, the fourth component, “because it is the most complex” of the asset class’ initiatives.

CalPERS aims for its infrastructure programme to achieve an average annual return of 5 percent over the rate of inflation, net of fees, over a five-year period.

The firm currently has $461 million invested in infrastructure assets through its private equity and real estate allocations.

The new asset allocation will target construction of bridges, airports, utilities, water systems and other infrastructure, investment committee chair George Diehr said in a statement.

Some California public employees, however, feel the initiative threatens public sector jobs. The 13,000-member Professional Engineers in California Government said Wednesday it would sue CalPERS to block it from investing in public-private infrastructure projects.

CalPERS may look to infrastructure projects in Asia, as staff has also recommended that the firm increase its exposure there.

Last week investment staff recommended allocating up to 20 percent of the fund’s real estate pot, valued at $23.6 billion, to emerging markets over the coming decade – with China and India among the favoured countries.