Exclusive: Hawaii ERS commits $50m to McMorgan

The investment marks the public pension fund’s first infra allocation from its real return asset class category.

The Employees’ Retirement System (ERS) of the State of Hawaii has recently allocated $50 million to the McMorgan Infrastructure Fund, the pension fund’s chief investment officer Vijoy Chattergy confirmed.

The investment is ERS’s first infrastructure allocation in the real return asset class category as the pension fund looks to diversify its real return holdings.

While ERS has invested in infrastructure before, those allocations were made through its 16-year old private equity programme managed by a discretionary consultant. The investment in the McMorgan fund is the first infrastructure allocation made by the pension fund’s investment committee, Chattergy told Infrastructure Investor on Friday.

“The McMorgan Infrastructure Fund is a feeder fund into OMERS’ Borealis investor programme, which focuses on high-quality assets that generate strong and steady cash flows,” Chattergy explained, referring to the infrastructure direct investment arm of Canadian pension Ontario Municipal Employees Retirement Scheme.

ERS would like to add another one or two infrastructure funds over the next 12 to 18 months, Chattergy said.

Asked whether the plan would focus on a region or sector, the chief investment officer responded: “It would depend on the characteristics of the investment opportunity, such as leverage, risk, geography and the size of the investment.”

ERS would also consider looking at opportunities involving smaller, community-type assets, as opposed to the large-scale infrastructure with a value of $1 billion or greater on which Borealis focuses.

“But we would probably go through a fund; we would not invest directly,” Chattergy explained.

As for sectors, “we are open to all,” he said.

As of September 30, 2013, the pension fund’s aggregate portfolio value stood at $12.9 billion, gaining $1.2 billion compared with the previous year, according to data presented by the pension fund’s investment consultant, Pension Consulting Alliance (PCA), at ERS’ board meeting on November 13, 2013.

The pension fund’s other investment consultant is Cleveland-based Courtland Partners.

The McMorgan fund is managed by San Francisco-based McMorgan & Co., an investment manager exclusively dedicated to Taft-Hartley plans, multi-employer pension plans collectively bargained with each participating employer.

Taft-Hartley refers to the Taft-Hartley Act, also known as the Labour Management Relations Act, passed in 1947. The law amended the National Labour Relations Act (NLRA) of 1935, by defining the rights and obligations of unions. The NLRA had only referred to unfair labour practices committed by employers.

Established in 1926, ERS is a defined public pension plan, providing retirement allowances and other benefits to state and county government employees. As of June 30, 2011, the latest data available on its website, ERS had a total of 111,648 members.