CalPERS delays defining infrastructure investment policy

The California Public Employees’ Retirement System yesterday set benchmarks for investments in commodities, timber and bonds, three of the four aspects comprising its recently launched inflation-linked asset class. But the US’ largest public pension has delayed defining its policy for infrastructure, the fourth component, “because it is the most complex” of the asset class’ initiatives.

CalPERS said its investment committee would consider infrastructure policy “at a later meeting”. Exactly how to define infrastructure and other inflation-linked investments is a problem that has plagued many large institutional investors, and by extension general partners; the Colorado Public Employees’ Retirement Association, for example, recently created an “opportunity” allocation bucket for investments that fall outside of its existing asset class definitions.

Dubbed ILAC by the $245 billion CalPERS, its nascent asset class was created late last year and given a 5 percent target allocation over the next three years. ILAC should allow CalPERS to take advantage of opportunities in the energy and natural resources markets and serve as a hedge against inflation, a spokesman previously told PEO.

“We envision construction ventures for roads, bridges, airports, utilities, water systems and other projects where several components of this new asset class might come into play,” Rob Feckner, president of CalPERS’ administrative board, said in a statement. “For example, we might invest in a natural resource or energy-related power plant that could involve private equity, real estate, commodities, and bonds.”

With regards to timber, commodites and bonds, CalPERS formalised its benchmarks with a goal to surpass by at least 5 percent the Consumer Price Index, which it called a generally accepted standard for inflation. The investment committee also established that it can use inflation-linked bonds as collateral in addition to cash “at a later stage”.

The pension disclosed that it has approximately $2 billion invested in ILAC sectors, some of which is due to a September 2007 reclassification of $573 million-worth of existing private equity, real estate and fixed income investments.

In December, CalPERS increased its allocations to alternatives across the board, raising its private equity target to 10 percent from 6 percent and its real estate allocation to 10 percent from 8 percent. At the time, a spokesman told PEO that the pension's private equity and real estate classes are consistently its top performers. He noted that for the year ended 30 September private equity returned 30 percent.