The $787 billion economic stimulus package could provide CalPERS and other large pension funds with investment opportunities for their new infrastructure allocations.
Staff for the $171.3 billion California Public Employees Retirement System, Sacramento, has already been in discussions with President Barack Obama's transition team to see whether there are infrastructure investment opportunities for pension plans from the billions of dollars the government will be spending on infrastructure and other public works projects.
CalPERS staff also has been in discussions with other public pension funds about a possible “common approach,” according to a memo attached to the Feb. 17 investment committee meeting agenda.
A tax-advantaged financing vehicle that was part of the stimulus package signed Feb. 17 by Mr. Obama, as well as a proposal to create a National Infrastructure Reinvestment Bank, could provide “scope for engagement in public- private partnerships,” the memo states.
Bill Clark, director of the $60 billion New Jersey Division of Investment, Trenton, said he has been in informal discussions with five to 10 large pension plans as well as Mr. Obama's transition team to find a way for pension funds to participate in infrastructure investments in the U.S.
“What is available currently for U.S. infrastructure investments are a lot of funds structured by U.S. banks and asset managers, and they have set the terms on how pension funds can invest,” Mr. Clark said. “By pension funds coming together either formally or informally, we can set the terms on how we can invest.”
Infrastructure investing has grown at a rapid pace — up 270% to $2.28 billion for the largest 200 pension funds in the year ended last Sept. 30, according to Pensions & Investments' annual pension fund survey.
Much of institutional investors' infrastructure investments have been outside the United States. Industry insiders agree with CalPERS staff that the federal government's capital injections into new and existing infrastructure could open up a way to invest at home.
CalPERS' investment committee is not expected to see an investment plan from the staff until its March 16 meeting. However, co-investment with other pension plans was part of the vision when an infrastructure allocation was first proposed two years ago, said Clark McKinley, CalPERS spokesman.
Other pension plans have been in early-stage talks to explore common opportunities, sources say. Everything and anything have been on the table, including co-investments with infrastructure managers and pension funds. Also debated has been the idea of creating an infrastructure investment pool for greater efficiencies and lower fees and costs, sources say.
CalPERS has been engaging other public pension funds in search of a common approach, according to the CalPERS memorandum from Farouki Majeed, senior investment officer, asset allocation.
The federal economic stimulus bill contains about $150 billion for infrastructure projects. This is enough capital to get some projects off the ground, but nowhere near the roughly $2.2 trillion worth of need in the U.S. alone over the next five years, according to estimates by the American Society of Civil Engineers released Jan. 28.
In comparison to the need, the stimulus package has very little allocated to infrastructure investments, said Michael D. Underhill, chief executive officer of Capital Innovations LLC, Hartland, Wis., an infrastructure investment management firm.
This gap between the amount in the stimulus plan and the amount needed creates “an insatiable appetite for investment and the opportunity for private capital to play a role in the financing needs of this country,” Mr. Underhill said. Private capital can invest alongside the government in infrastructure projects, he said.
The federal stimulus package, as well as the proposed investment corporation that likely would issue debt, could lead to increases in public/private partnerships that would inject private capital alongside government money in infrastructure projects, Mr. Majeed noted in his memo.
At the very least, infrastructure managers expect that institutional investors, most new to infrastructure investment, will co-invest with managers, sometimes in deals initiated with the help of federal money.
“I'm sure some of the very largest pension funds will co-invest in infrastructure deals, just as they have done in private equity and real estate,” said Jay Yoder, partner and head of real assets, Altius Associates, a Richmond, Va.-based private equity advisory firm.