CalPERS infra portfolio outperforms benchmark

The largest US public pension fund’s infrastructure programme has consistently outperformed benchmarks achieving an IRR of 17.1% since its launch in 2009.

The infrastructure portfolio of the California Public Employees Retirement System (CalPERS) has outperformed policy benchmarks for the past one-, three- and five-year periods, achieving an internal rate of return (IRR) of 17.1 percent since the programme’s inception in 2009.

The results of the portfolio’s performance, which falls within CalPERS’ real assets programme, are included in the pension fund’s real assets annual review for the period ending June 30, 2014, which acting senior investment officer Tom McDonagh will present at CalPERS upcoming board meeting on Monday, November 17.

According to the meeting materials, infrastructure posted net returns of 22.8 percent, 12.0 percent and 23.3 percent for one-, three- and five-year periods, exceeding the policy index by 17.2, 6.1 and 16.6 percent, respectively.

Strong performance has been driven by all investment modes, including direct, separate account investments and select commingled funds, according to the meeting documents.

As of June 30, the net asset value of the infrastructure portfolio stood at $1.8 billion, representing 0.6 percent of CalPERS’ $301.4 billion total funds compared with a target allocation of 3 percent. The pension fund plans to grow NAV by over $4 billion in the next three years, according to the meeting materials prepared by McDonagh.

CalPERS has been increasing the pace of investment in the asset class in recent months. In August, it announced a $500 million strategic partnership with UBS and commitments to Morgan Stanley Infrastructure Partners II and UBS International Infrastructure Fund, totaling $550 million.

While the pension fund invests across all infrastructure sub-sectors, nearly half of its portfolio is invested in the power sector (49 percent), followed by transportation (27 percent), energy (13 percent), water (6 percent), and communications (2 percent).

Geographically, CalPERS invests primarily in the US (57 percent) and other OECD (Organisation for Economic Cooperation and Development) countries. It currently has no investments in emerging markets.

Based in Sacramento, CalPERS administers health and retirement benefits on behalf of 3,089 public school, local agency and state employers. The institution counts more than 1.7 million members in its retirement system and more than 1.3 million in its health plans.