Foreign assets boost CalPERS’ transport-heavy portfolio

Core assets, including transportation and power, account for 81% of the pension’s infra portfolio, returning 24.8% for the year ending 30 June.

The California Public Employees’ Retirement System’s infrastructure portfolio has topped $4 billion for the first time, driven by strong returns from assets located abroad and investments tilted toward the transportation sector.

In an annual review of its $38.1 billion real assets programme, CalPERS, the largest US public pension, reported that its infrastructure portfolio now has a net asset value of $4.3 billion, taking the asset class to 1.2 percent of its total $360.1 billion fund.

Infrastructure’s performance is leading all other asset classes for the pension with a 20.6 percent net return over the past year ending 30 June. That compares favourably to CalPERS’ other real assets categories, including the $31.8 billion real estate portfolio’s 6.8 percent return, and the $1.9 billion forestland portfolio’s 1.9 percent return. Overall, the real assets programme generated a one-year return of 8 percent.

The pension fund added $522 million to its infrastructure portfolio since its last annual review. The pension’s largest new investment over the past year was made in November 2017 when CalPERS acquired two wind farms in Oklahoma and Kansas. The pension invested through a separate account called Gulf Pacific Power, which is managed by Harbert Management Corporation.

The portfolio is heavily weighted toward core assets at 81 percent, which generated 24.8 percent returns. The remainder of the portfolio is in non-core assets, which returned 6 percent.

Representing 29 percent of the infrastructure portfolio, international core assets were a highlight for CalPERS, returning 41 percent compared to between 10 and 17 percent for domestic core assets. Overall, 54 percent of CalPERS’ infrastructure assets are located in the US and 45 percent are located abroad.

Nearly half of investments – 46 percent – are in the transportation sector, while power accounts for 44 percent of CalPERS’ infrastructure portfolio, with energy, water and communications comprising the balance.

CalPERS has stated its real assets strategy going forward is to invest more using separate accounts and to use fewer and larger external managers. However, the pension still uses eight external managers, split near evenly between separate accounts, direct investments and commingled funds.

The pension fund, under chief investment officer Ted Eliopoulos’ Vision 2020 strategy, has been working towards reducing the portfolio’s complexity, cutting fees and better managing risk.

The results of that strategy are beginning to materialise, as Eliopoulos – after eight years in the role – prepares to step down by year end in order to relocate to New York for family reasons.

Yu Ben Meng, who previously worked at CalPERS between 2007 and 2015 in various roles, will be succeeding him, the pension fund said last week. Meng will be re-joining CalPERS from China’s State Administration of Foreign Exchange, where he’s been serving as deputy CIO for the last three years.