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Oregon approves infrastructure allocation

A new ‘alternatives’ portfolio, targeted at 5%, includes a 35% to 45% exposure to infrastructure, marking the $56.7bn Oregon Public Employees Retirement Fund’s first specific allocation to the asset class.

The Oregon Investment Council unanimously approved a new 5 percent allocation to alternative investments already not represented in the portfolio of its $56.7 billion Public Employees Retirement Fund, opening up the fund to its first-ever specific infrastructure allocation.

“That 5 percent will be looking at investments that aren’t delineated in the portfolio now, including infrastructure investments,” said James Sinks, a spokesperson for the Oregon Investment Council (OIC), which oversees the Public Employees Retirement Fund.

“This is the first time the OIC has targeted a section of the portfolio to this,” Sinks added.

By adding a specific infrastructure target to its portfolio, Oregon becomes the latest long-standing private equity pension investor to enter the asset class, following similar moves by the $228 billion California Public Employees’ Retirement System, the $146 billion California State Teachers’ Retirement System and the $110 billion Florida Retirement System.

The new alternatives portfolio will focus on real assets that offer inflation protection, according to an OIC presentation. The presentation suggests the portfolio’s 5 percent allocation be made up of infrastructure (35 to 45 percent), natural resources (40 to 50 percent), hedge funds (10 to 15 percent) and other investments (10 percent).

The performance benchmark for the portfolio will be the consumer price index, or CPI, plus 4 percent – an expectation similar to CalPERS’ benchmark for its Inflation-Linked Asset Class, which includes infrastructure.

The OIC made room for the alternatives portfolio by reducing its target for public equities and fixed income by 3 percent and 2 percent, respectively. There are currently no plans to hire additional staff or a dedicated consultant to implement the portfolio’s infrastructure allocation, Sinks said.

Sinks said Oregon’s alternatives portfolio will initially be seeded with some opportunistic investments Oregon has made over the years, which total about 2 percent. These include one infrastructure investment – a $200 million commitment to Alinda Capital Partners’ second infrastructure fund – and $232 million of commitments to funds managed by oil and gas investor Sheridan Production Partners.

Sinks said the Alinda commitment, made in September 2008, is Oregon’s only infrastructure investment to date.

Oregon is among the oldest pension investors in private equity, which currently makes up 21 percent of its portfolio. The pension began investing with private equity managers more than 30 years ago and those investments “have been the most successful in Oregon’s portfolio”, the OIC said in a statement this week.

The OIC approved a $525 million commitment to private equity manager Kohlberg Kravis Roberts’ eleventh North American fund, which is targeting between $8 billion to $10 billion.

KKR is also raising an infrastructure fund, which held a second close on $515 million late last year. It is unclear whether Oregon is also planning to invest in that fund; Sinks said the pension does not comment on investments it may be considering.