DIRECT FROM SACRAMENTO

The largest public pension in the US is paving the way toward becoming a major direct investor in infrastructure assets, part of a broader expansion into what its investment committee is calling a new “inflation-linked” asset class.

In July, the investment staff of the $232 billion (€171 billion) Sacramento-based California Public Employees' Retirement System will meet off-site with the pension's board to present proposed details of the new programme. It is the first time in many years that CalPERS has considered allocating to a new asset class.

The pension defines “inflation-linked” assets as including commodities, inflation-liked bonds, timberland and infrastructure. Particularly in infrastructure, CalPERS is planning to flex its considerable muscle. According to a memo from the pension, CalPERS is already invested in infrastructure assets to the tune of “several billion dollars”, albeit as an indirect investor. The investment staff wants to change this approach, and has hired consultant Wilshire Associates to help structure a direct investment programme.

According to the CalPERS memo, the pension “could be going in with other large investors on an alternative energy (ethanol, for example) power plant, and related commodities prices could be locked in through the commodities program. It's a different type of risk and doesn't fit neatly into categories…”

The memo estimates that more than $20 trillion in new capital is needed in the energy market alone. Creating the new asset class “would make CalPERS a player in solving some pressing public policy infrastructure problems related mainly to energy and transportation”, it concludes.

Eventually, as much as one percent of the overall CalPERS portfolio could be in the form of direct infrastructure assets. If these end up outperforming the fee-laden partnerships and accounts in which the bulk of the pension's assets are tied up, it is likely that the direct programme will grow further.

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