CalPERS diversifies into infrastructure, unveils new asset class

In a move to hedge against inflation and target the growing infrastructure sector, California pension CalPERS has debuted a pilot infrastructure program within its new inflation-linked asset class.

The California Public Employees’ Retirement System (CalPERS) has established an inflation-linked asset class that would include an allocation of up to $2.5 billion (€1.8 billion) in a pilot infrastructure program.

“We hope to generate stable, attractive investment returns with low to moderate risk as we deploy capital to meet a reported need of $1.6 trillion for US infrastructure projects over the next five years,” Rob Feckner, CalPERS board president, said in a statement released by the pension. “These pilot programs are our first step toward recognizing that opportunity and a step toward further diversifying our portfolio.”

The infrastructure program will target investments in the construction of roads, bridges, airports, utilities, water systems and other projects.

CalPERS’ board of administration also moved to reclassify $573 million of existing investments into the new inflation-linked asset class, which will be comprised of commodities, inflation-linked bonds and timber in addition to infrastructure.

The pension currently has approximately $450 million in commodities investments as well as $123 million in timberland, inflation-linked bonds and infrastructure investments. These assets will be shifted to the pilot inflation-linked asset class as early as next month.

“This new asset class should give us a hedge against inflation,” Charles Valdes, investment committee chair, said in the statement. “It enhances diversification, gives us a bigger net in the market and reaches across private equity, fixed income, and real estate sectors. CalPERS could become a major player in solving some pressing public policy problems related mainly to energy and transportation.”

Policy allocations will be recommended for the asset class in December, following CalPERS board’s asset/liability management workshop in November. The pilot infrastructure program will run until June 2008 with permanent status contingent on investment committee approval.