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CalPERS’ infra programme continues to outperform

The California pension’s infrastructure strategy beat its benchmark last quarter, but its overall real assets portfolio took a hit.

The California Public Employees' Retirement System's infrastructure programme continued to gain momentum at year-end as global investors moved to the asset class for attractive and reliable yields.

CalPERS posted a 4 percent return on its infrastructure assets during the fourth quarter of last year, outperforming its 1.2 percent benchmark, according to a consulting report compiled by StepStone Group.

Infrastructure is also outperforming the pension's benchmark over one, three and five year periods. The programme returned 8.3 percent, 14 percent and 12 percent over those periods, respectively, versus benchmark returns of 5.5 percent, 5.1 percent and 5.3 percent.

StepStone's report did not disclose the size of CalPERS' infrastructure programme, part of its $21.7 billion real assets portfolio, but the pension's strategy is to allocate 15 percent of that portfolio to infrastructure. The rest is set aside for real estate. As of 17 January, CalPERS managed a total of $307.46 billion in assets.

The pension's overall real assets portfolio took a hit in fiscal year 2015-2016, posting a one-year return of 6 percent over the period, 5.1 percent below its benchmark. It fared better over three years, coming just 0.9 percent below its target, and beat its 11 percent benchmark over five years by 0.1 percent.

“While infrastructure did well, the total real asset portfolio was driven down by poor performance in forestland and non-core [real estate] holdings,” CalPERS spokesperson Megan White told Infrastructure Investor.

Stepstone noted that the infrastructure programme's fourth quarter results “will be less significant than performance over longer periods”. However, the financial consultant mentioned several reasons why the asset class is doing well.

It said competition remained strong for core infrastructure assets in developed markets in the second half of 2016. Low interest rates led to investments into mature, operational infrastructure assets.

The stable and predictable cashflow provided by infrastructure projects has offered investors an attractive alternative to yields offered by sovereign or corporate debt securities. Risks concerning rising inflation also made infrastructure assets a safe bet for investors.