CalPERS’ Mouchakkaa: US market must tick our boxes

The pension’s real assets chief is cautiously optimistic about his home market a year after CalPERS subsumed infrastructure into a wider real assets pocket.

Earlier this week, the California Public Employees’ Retirement System was among the 217 investors that addressed a letter to US President Donald Trump asking him to stick with the Paris Climate Agreement, from which he had been threatening to withdraw.

Yet in several other respects, the arrival of Donald Trump in the White House has fed the hope of both domestic and international institutions that the US is finally on the right track to become a sizeable private infrastructure market.

CalPERS, again, is among them. “We are optimistic, but it has to tick the right boxes,” Paul Mouchakkaa, managing investment director for real assets at the $295 billion pension told Infrastructure Investor in a recent interview.

The first of these hinges on whether Trump’s infrastructure plan and any related measures to revive the industry to private investors, will really happen. Indeed, signs are that the administration has not lost sight of the objective, but that the outline of an infrastructure package may not emerge before several quarters.

Mouchakkaa articulates the next question in these terms: “Will it be available to private capital and institutional investors?”. Here again, disagreements subsist within the administration as to how much private capital should supplement public money and how such investments will be structured.

The last box is more straightforward, at least in principle. “Will it meet our investment goals and standards?” asked Mouchakkaa. “As you see, there are several needles we need to thread.”

His comments have resonance about a year after CalPERS initiated a strategic shift that led it to collapse infrastructure and real estate into a broader real assets category, which Mouchakkaa currently leads.

“The walls between these two sectors have become thinner,” he explained. “Whether real estate or infrastructure, they are both hard assets. The role for real estate and infrastructure is almost identical for CalPERS: stable cash yields, diversification of equity risk, partial inflation protection.”

CalPERS currently has a 1 percent allocation to infrastructure itself, and a 2 percent target. Mouchakkaa says the pension only seeks to grow the portfolio by taking stakes in private assets, rather than getting exposure through listed infrastructure or infrastructure debt. “CalPERS has a strong appetite for infrastructure assets that meet our role and return requirements.”

The pension also invests through a number of separate accounts, notably some with Australian and global mandates. Future commitments could see it target new geographies – Europe, Mouchakkaa says, or the US. “We use funds to target specific sectors or geographies. It’s always a question of timing.”