MainePERS ‘tightens focus’ on core funds

The $19bn pension fund may be new to the GI 50, but it’s no newcomer to infrastructure. Historically focused on value-add funds, CIO James Bennett tells us why it’s pivoting to core.

James Bennett illustration
James Bennett

In April 2022, the Maine Public Employees Retirement System made a $100 million commitment to KKR’s Diversified Core Infrastructure Fund, its first to an open-ended vehicle since 2012 when it invested in IFM Investors’ Global Infrastructure Fund.

But it was the KKR fund’s focus on core infrastructure, rather than its open-end structure, that carried more weight in the pension’s decision, its chief investment officer James Bennett tells Infrastructure Investor. And MainePERS plans to continue investing in core funds. “We’re increasing our allocation towards core infrastructure funds,” he says. “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.”

Recent infra investments

The pension fund has maintained an allocation of 10 percent towards infrastructure since 2013, Bennett says, 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 Stonepeak Funds II, III and IV; EQT Infrastructure III, IV and V; and all four equity vehicles launched by Global Infrastructure Partners; 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],” says Bennett. “That’s not a bad thing and we’re probably the first to be looking at something like digital infrastructure.”

However, he adds: “We want to tighten the focus towards assets that are cashflowing 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 explains, with KKR’s DCIF targeting 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 says. “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 financial year ending June 2021, while returns for the last financial year totalled 19.1 percent. The pension 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 said. “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.”