The Employees Retirement System of Texas plans to spend $300 million on the asset class in 2017.
Texas ERS approved a $50 million increase in infrastructure spending for the current fiscal year, which began 1 September and ends 31 August, according to a board meeting document. The pension fell short of its $250 million target during the previous period, investing $178 million during fiscal year 2016, but is still optimistic about the asset class.
This year’s commitment has a 25 percent range, meaning Texas ERS could spend as little as $225 million or up to $375 million on infrastructure.
“The Employees Retirement System of Texas has determined that, over the long term, inclusion of private infrastructure investments would enhance ERS’ expected portfolio investment characteristics,” the document says.
Since making its first infrastructure commitments in 2012, Texas ERS has pledged $752.5 million to six private funds and nine co-investments, as of 31 December. Some of the pension’s investments include $125 million to Actis Energy 3 in 2013, $100 million to Actis Energy 4 this year, $75 million to I Squared Infrastructure Fund, $68 million to Stonepeak Infrastructure Fund II and A$65 million ($50.23 million; €47.46 million) to QIC's Global Infrastructure Fund.
At the end of last year, the net asset value of its private infrastructure holdings stood at $440.8 million. The pension said its internal rate of return for the portfolio since inception is 0.33 percent, a number it noted “may not be meaningful” because its investments are in the early stages of their lifecycle.
Infrastructure accounts for 1.67 percent of the $25 billion pension’s funds. It plans to allocate 4 percent to the asset class by 2020.
Texas ERS noted an increasingly competitive infrastructure market, especially in the US.
“Some of the barriers we encounter in such a task are related to the relative larger size of the typical infrastructure investments and the larger infrastructure allocations of competing investors,” the pension’s meeting document says. “From a market-access efficiency perspective, smaller portfolios, like ERS’s, are at a disadvantage compared to larger ones.”
Texas ERS said it will continue to watch the US power sector for emerging opportunities in fossil fuels and renewable energy, and will continue to monitor telecommunications infrastructure, which it sees as a growing space. It is also expecting new transportation and utility PPP opportunities to result from increased government spending.