CalPERS doubles down on infra separate accounts

Real assets head Paul Mouchakkaa told the pension’s investment committee it will model its infra investment strategy after its real estate one.

The California Public Employees’ Retirement System will continue to invest its infrastructure allocation through separate accounts, following a similar strategy to its real estate portfolio, managing investment director Paul Mouchakkaa said.

Mouchakkaa, head of the California pension’s $36.29 billion real assets portfolio, said at an investment committee meeting on Monday that separate account partnerships will be the strategy that guides infrastructure investments going forward. “That model is where we are going,” he said.

CalPERS’ $3.77 billion infrastructure portfolio has 13 commitments spread across funds, separate accounts and other vehicles. Its largest commitment is an $808 million separate account managed by power specialists Harbert Management Corporation, returning a net 18.29 and 5.9 percent over one and three years respectively as of 30 June.

“What we are looking to implement is really a strategy that we have had a lot of success with in real estate,” Mouchakkaa explained, “which is to partner with an investment manager that may cover a region or a sector as their primary area of expertise and create a separate account and allocate capital on an annual basis”.

CalPERS’ real estate portfolio grew to $30.54 billion as of 30 June. It had a 7.6 percent one-year return compared to infrastructure at 9.9 percent. The overall real assets portfolio returned 7.4 percent.

Mouchakkaa said the real assets group will still “explore” direct investments and hinted that a fund allocation may be required to bring in more of those through co-investments.

He added that the $323 billion pension’s move in 2016 to create a single real assets programme consisting of infrastructure, real estate and forestland has led to better communication between the portfolio’s different teams.

“We ask ourselves: ‘Could we accomplish or could we acquire this asset in infrastructure or real estate and maybe get the same return with greater governance or with less risk or volatility,’” Mouchakkaa said, pointing out the advantages of the pension’s comparative approach.