CalSTRS commits $500m to IFM

In one of the largest commitments ever made by a US institution to an infrastructure fund manager, the California State Teachers’ Retirement System has pledged a total of up to $500m to Australia’s Industry Funds Management.

The California State Teachers’ Retirement System (CalSTRS) has awarded Industry Funds Management (IFM) an infrastructure mandate of “up to” $500 million according to a statement released by the Sacramento-based organisation, which has $154 billion under management.

CalSTRS said the commitment would be made in two tranches, with the first $300 million to be invested immediately and then a further $200 million “expected to be invested within the next 18 months”. The money will go into IFM's Global Infrastructure Fund, which has a portfolio of assets in North America and Europe.  

Melbourne-based IFM – which also has offices in London and New York – has a range of investment products across infrastructure, private equity, listed equities and debt. According to its website, it had a total of A$30.2 billion (€24.7 billion; $32.6 billion) in funds under management at 30 September 2011. 

IFM, which was ranked the 15th-largest investor in infrastructure globally in last year’s Infrastructure Investor 30 ranking, is owned by 35 Australian superannuation funds. In December last year, it announced it was handing investors a rebate equivalent to 12.5 percent of annual fees, saying it had a “genuine motivation to act in the best interests of investors”.       

Last month, IFM announced it had received a £35 million (€42 million; $55 million) mandate from Leicestershire County Council Pension Fund, one of the largest infrastructure commitments made by a UK local authority fund in recent years. 

“We selected a well established and well respected partner precisely because CalSTRS is relatively new to the sector and we want to get to know it well before venturing beyond the fund structure,” said Chris Ailman, CalSTRS’ chief investment officer, in the statement.

Last July, CalSTRS announced in its fiscal 2011-2012 business plan that it had a target of $300 million to $600 million for investments in infrastructure during the year. It made its first infrastructure investment in April last year, committing $150 million to US-based First Reserve’s debut energy infrastructure fund.

CalSTRS said its infrastructure mandate involves core infrastructure assets such as regulated utilities, transport and other cash-yielding, inflation-hedged investments. IFM has invested in the likes of German electricity grid 50Hertz Transmission, Polish utility Dalkia Polska and US petroleum carrier Colonial Pipeline.

In the statement, CalSTRS pointed out the role it believed infrastructure had to play in rebalancing its portfolio following the global economic crisis of 2008-09. “What the recent economic crisis demonstrated was the need for greater diversification in our investment portfolio, in areas that would also serve as a hedge against inflation,” said Ailman. “This type of investment aligns our goals as patient long-term investors with both the jobs generation and infrastructure improvement our economy needs.”

The large US pensions have begun to make their move into infrastructure after a relatively slow start compared with their peers in Canada and Australia. In December last year, the $225 billion California Public Employees’ Retirement System made its second direct infrastructure investment through the purchase of shares in the Neptune regional transmission line connecting New Jersey and New York’s Long Island.

Its debut investment was a 12.7 percent stake in London’s Gatwick Airport – which is owned by US fund manager Global Infrastructure Partners – in June 2010. In September last year, it allocated up to $800 million for investment in Californian infrastructure over the following three years.