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The California Public Employees’ Retirement System (CalPERS) today adopted an investment policy to guide its investments in infrastructure including transportation, ports, energy, water, and communications projects.
"There are vast investment opportunities in infrastructure where we can generate solid returns for our fund while supporting essential community services that are crucial to continued economic development," said Rob Feckner, CalPERS Board President.
Infrastructure was the last component of a new asset class to be approved by the CalPERS Board, which earlier adopted policies for the three other sub-asset classes including commodities, inflation-linked bonds, and forestland.
California alone has an estimated $500 billion requirement to improve and develop physical structures, facilities, and networks to keep pace with population growth over the next two decades. The new CalPERS policy includes provisions to:
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Allocate up to 3 percent of total CalPERS market assets to infrastructure through the year 2010;
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Achieve an average annual investment return of 5 percent over the rate of inflation, net of fees, over five years;
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Invest in both public and private infrastructure including but not limited to transportation, energy, natural resources, utilities, water, communications, and other social support services;
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Secure agreements from investment vehicle managers to follow CalPERS Responsible Contractor Program guidelines for fair labor practices; and
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Minimize potential adverse impacts to public employee jobs in the development and operation of infrastructure projects.
"Several components of our new asset class might come into play in the eventual construction of bridges, airports, utilities, water systems, and other infrastructure," said George Diehr, Investment Committee Chair. "We’re looking for long-term economic value by providing safe, reliable, efficient, and high quality services that are vital for society."
CalPERS had $4.7 billion in its inflation-linked asset class (ILAC) as of June 30, 2008, or 2 percent of the total fund.
In December 2007, the Board formalized the ILAC program as a fifth asset class with a target allocation of up to 5 percent of total CalPERS market value over the next three years. The other asset classes are Global Equity (public stocks), Global Fixed Income, Alternative Investment Management (private equity), and Real Estate.
Today’s action lays the tracks for development that could far exceed the $400 million in committed infrastructure-related investments CalPERS had in private equity and real estate before formation of the new asset class. The pension fund will consider new infrastructure commitments following assessments of investment opportunities in the fourth quarter of 2008.
CalPERS is the nation’s largest public pension fund with more than $234 billion in assets. It provides retirement and health benefits to approximately 1.5 million California State, local agency and schools employees and their families. For more about CalPERS, visit www.calpers.ca.gov.
