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CalSTRS set to allocate $1bn to infrastructure

The US’ second largest pension fund is considering allocating $1bn to the growing asset class with California’s infrastructure needs to be given preference. The move comes as fellow pension giant CalPERS finalises its inflation-linked investment programme.

The California State Teachers’ Retirement System (CalSTRS) is considering allocating $1 billion (€642 million) to infrastructure.

Outlining the plans in a policy paper this week, the US’ second largest public pension fund said it would consider investments in the growing asset class as part of a new fixed assets financing program.

The policy will be put forward for final approval at the $176 billion (€113 billion) fund’s investment committee in July, however officials said investments in energy, transportation, ports, water, communications, healthcare and judicial buildings were being actively considered. Prisons, schools and other “large employment base infrastructure” would most likely be avoided but would be judged on a case-by-case basis.

The US would be a significant beneficiary of the new allocation pot as an emerging infrastructure market, according to the policy paper, with Californian projects set to be given preferential treatment.

Although CalSTRS warned it could not necessarily provide the “cheapest capital for California to build its infrastructure with” there was a “nexus” between the state’s plans and its investment needs. “By policy we propose the California transactions be given a preference,” the paper added.

The initial allocation of $1 billion would be invested over time, CalSTRS said, with up to 70 percent of the pot going to core investments such as energy, utilities and transportation; up to 50 percent to value-added investments and up to 30 percent in publicly-traded infrastructure equities.

The pension fund said it expected to reap returns of at least five percent net of fees for core investments and a minimum of seven percent net of fees for value-added projects. At least three-quarters of all investments would be focused on the US, with investments in closed-ended commingled vehicles limited to 10 years.

Fellow Sacramento-headquarted pension, The California Public Employees' Retirement System, is in the process of finalising its infrastructure investment programme, approved last year.