The $227 billion California Public Employees’ Retirement System (CalPERS) has agreed to commit up to $800 million to infrastructure investments in California over the next three years.
CalPERS will look to invest in both public and private infrastructure in California in areas including energy, transportation, utilities and natural resources, according to a statement. The pension fund has established a 2 percent infrastructure target which is 80 percent weighted toward US investments, said Wayne Davis, information officer for the pension fund.
CalPERS has currently invested $67 million in infrastructure projects in California in sectors including water treatment and solar power, Davis said. He added that those sectors are “some of the areas that offer the most promise”, but declined to specify particular investments that CalPERS will pursue in California.
The pension fund will target individual investments of about $150 million to $300 million with a return on equity of 4 to 8 percent, according to a presentation from yesterday’s investment committee meeting. CalPERS will also consider investing in debt for projects such as contracted power generation, regulated utilities, and public-private partnerships (PPPs) backed by either user fees or availability payments.
In a statement, CalPERS investment committee chair George Diehr said the fund will look for investments that “not only meet our risk-return objectives, but that we believe have the extra benefit of creating jobs and ultimately improving the economic climate”.
Davis emphasised that the California allocation depends upon CalPERS’ finding opportunities and projects that match the pension fund’s risk-return requirements for infrastructure investments.
The fund’s overall infrastructure target of 2 percent translates to about $5 billion in infrastructure investments, but Davis said CalPERS has invested about $637 million in infrastructure as of March 31.
“It’s a very young programme that we are moving into carefully as we find the right opportunities,” Davis said.
The agenda for yesterday’s investment committee meeting also included a presentation by Meketa Investment Group, which addressed some of the infrastructure needs California faces as well as some of the challenges of investing in CalPERS’ home state.
Potential challenges for investing in California PPPs include a decentralised decision-making process, uncertain or inconsistent procurement processes, significant construction risks, and greenfield PPP structures that require higher levels of debt, which might make them unsuitable to a long-term equity investor such as a pension fund, according to Meketa’s presentation.
CalPERS’ staff will give a presentation to the investment committee next month on how to reach out to state and local governments in order to implement the plan, according to Davis.
CalPERS manages retirement benefits for about 1.6 million active and retired public employees in California, according to a statement. CalPERS’ infrastructure group was created in 2008, and made its first investment in 2009 with the purchase of stake in London’s Gatwick Airport.