CalSTRS eyes more infrastructure co-investments

The second-largest US public pension fund is reviewing two to three more infrastructure co-investment opportunities, after making its first such deal earlier this year.

The California State Teachers Retirement System (CalSTRS) is looking at more infrastructure co-investment opportunities, said Paul Shantic, the pension fund’s director for inflation-sensitive investments, speaking at The Pension Bridge’s Private Equity Exclusive conference on 21 July in Chicago. The $193 billion pension fund, the second-largest in North America, is looking at two to three investments at the moment, though Shantic said there have been many more where negotiations fell apart along the way.

He later told Infrastructure Investor that CalSTRS looks at infrastructure co-investments as a way to save on fees and get a direct relationship with quality assets. He declined further comment on the initiative.

The pension began building its infrastructure and general inflation-sensitive investments portfolio, which is set at a target of 1 percent, after the financial crisis. At the time, the fund’s investment staff saw a lot of its strategies become correlated and go south, so CalSTRS was looking for more uncorrelated sources of return, Shantic said.

Last October, the California pension fund said it wanted to establish a co-investment platform that would focus on North American infrastructure. It revised its infrastructure policy in February, paving the way for the formation of a consortium-style platform.

The first co-investment deal was made in April, when CalSTRS partnered with Dutch pension manager APG and investment office Crow Holdings to launch the Argo Infrastructure Partners (AIP) North American energy infrastructure platform. The three investors committed about $500 million of capital to the deal at the time, as II’s sister publication Low Carbon Energy Investor reported.

Speaking on the Infrastructure Investing panel at the conference this week, Shantic mentioned he was impressed with the speed at which this transaction closed (about a month) and thinks that, despite the level of bureaucracy involved in managing a large pension fund’s money, CalSTRS can still get deals done quickly, which is why infrastructure firms and other institutional investors would pick it as a partner on such transactions. However, he still doesn’t think that its level of co-investment activity would ever reach that of the large Canadian or Australian pension funds, many of which have separate private investment arms dedicated to co- and direct investments in various private assets.

Co-investments in general were a big topic at the private equity conference, and have been a growing trend among investors in various private equity-style funds, as they look to get more savvy and save on fees.

Chris Semple, portfolio manager at Crestline Investors, said that when Crestline’s clients want to co-invest and can’t get the deals done quickly enough, the firm will often pre-fund the commitments for them, until they get the checks approved through their process. He also said his firm is currently interested in energy special situations, particularly in the midstream market.

Richard Caputo, co-chief executive and managing partner at private equity firm The Jordan Company also said co-investment opportunities rarely come at the right time, speaking on a buyout panel. “When you need it, no one wants to give it to you and when you don’t need it everyone wants to give it to you, “ he said. “It’s all about liquidity and we’re in a high liquidity market right now,” he added.

Additional reporting by Kalliope Gourntis