MainePERS eyes increased allocation to core funds

The US pension plan has historically focused on value-add funds but is pivoting to core following a recent KKR commitment.

The Maine Public Employees Retirement System is planning further allocations to core infrastructure funds following a recent $100 million commitment to KKR’s Diversified Core Infrastructure Fund.

The $18.2 billion US public pension fund invested in KKR’s open-end offering last month, with the fund now having raised $7.2 billion since its launch in December 2020, according to KKR’s Q1 2022 earnings. The commitment was MainePERS’ first to an open-end infrastructure fund since a 2012 investment to IFM Investors – since redeemed – although chief investment officer James Bennett said the fund’s focus on core infrastructure, rather than its open-end structure, was the important factor in the pension’s decision.

“We’re increasing our allocation towards core infrastructure funds,” he told Infrastructure Investor. “Right now, we are more slanted towards value-add or core-plus, so I think we’ll be increasing our allocation towards core funds. Some of those do tend to be open-ended, some of those do not.”

MainePERS has maintained an allocation of 10 percent towards infrastructure since 2013, Bennett said, although actual commitments today put this at 10.1 percent. Commitments last year included investing €85 million each with Cube Infrastructure Fund III and Meridiam Sustainable Infrastructure Europe IV, while it has in the past invested in all four equity vehicles launched by Global Infrastructure Partners, Stonepeak Funds II, III and IV, EQT Infrastructure III, IV and V, as well as the first three infrastructure vehicles launched by KKR.

“The assets that might be considered infrastructure have evolved over time and [value-add] funds are on the edge of that [evolution],” said Bennett. “That’s not a bad thing and we’re probably the first to be looking at something like digital infrastructure.”

However, he added: “We want to tighten the focus towards assets that are cash flowing from the beginning. It’s taking a little bit of risk off the table but it’s appropriate for the portfolio to tighten up that focus.”

This means investing in funds with return profiles broadly ranging between 6 percent to 8 percent, he explained, with KKR’s DCIF target net returns of 7 percent to 9 percent.

“The core funds where we’re evolving towards will likely be a better fit [from a returns perspective], with a tighter band around that,” Bennett maintained. “Core-plus funds have a higher expected net but more potential variability.”

MainePERS’ infrastructure portfolio has generated returns of 13.1 percent in the last 10 years, according to its annual report for the fiscal year ending June 2021, while returns for the last fiscal year totalled 19.1 percent. The pension plan now plans on up to two more infrastructure commitments this year, according to Bennett.

“We’re very mature, so we’re not seeking to deploy capital at any unusual pace,” he outlined. “For the most part, we have the managers we like and as they come back, we’ll do our due diligence and decide whether to re-up.”