Hawaii ERS commits $20m to I Squared fund

The decision to back I Squared’s maiden infra vehicle, which is on its way to meeting its $3bn hard cap, marks the pension fund’s second investment in the asset class.

The board of the Employees’ Retirement System of the State of Hawaii (ERS) has approved a commitment of $20 million to ISQ Global Infrastructure Fund, the first infrastructure fund currently being raised by New York-based investment manager I Squared Capital, Infrastructure Investor was able to confirm.

The commitment marks the second allocation Hawaii ERS is making to the asset class. Last October, the $13.9 billion pension fund committed $50 million to Kohlberg Kravis Roberts & Co’s (KKR) Global Infrastructure Investors II fund.

While the KKR investment fell under the pension fund’s real return allocation, the commitment to the I Squared fund falls under the opportunistic real estate category.

“Because the ISQ Global Infrastructure Fund potentially has more exposure to development projects and emerging markets than other infrastructure investment funds, albeit in a very controlled manner, we felt its risk-return profile was a better fit with our opportunistic real estate asset category,” Hawaii ERS’ chief investment officer Vijoy Chattergy told Infrastructure Investor.

“We don’t have an asset class specifically dedicated to infrastructure, therefore we do the best we can in matching the risk-return profile of an investment with the asset classes that we currently do have,” he explained.

Because KKR’s second infrastructure vehicle will invest in long-lived (10+ year contracts) core infrastructure assets globally, Chattergy said it was more appropriate for the pension fund’s real return portfolio, which currently comprises timber and global Treasury Inflation-Protected Securities (TIPS).

ISQ Global Infrastructure Fund will focus on energy, utilities and transportation with a greater emphasis on North America and Europe, and to a lesser extent on emerging markets.

I Squared began fundraising in September 2013 and as of December 2014, the fund manager had surpassed its original $2 billion target. Sources have told Infrastructure Investor that the firm is on its way to meeting its hard cap of $3 billion and is expected to hold a final close later this year.

I Squared declined to comment on its fundraising efforts.

Established in 1926, ERS is a defined public pension plan, providing retirement allowances and other benefits to state and county government employees. As of September 30, Hawaii ERS had allocated $618.8 million to its real return portfolio, representing 4.3 percent of its total assets, while its real estate portfolio accounted for 6.4 percent of the total with a value of $895.4 million.