Executives of the California Public Employees' Retirement System are stepping up efforts to invest in infrastructure development, but must overcome monetary, political and public relations challenges to find suitable projects to deploy almost $4 billion.
Trustees of the $230.3 billion pension fund approved investing $5 billion in infrastructure in 2007, but so far have invested only around $1 billion.
Its most notable investments to date include the 2010 purchase of a 12.7% stake in London Gatwick Airport for $155 million.
CalPERS has tried to make at least 100 infrastructure investments since 2008, but was outbid by other investors or decided to pass on the deals because the underlying investment gains were considered inadequate, said J.J. Jelincic, a CalPERS trustee. CalPERS officials have said they are seeking at least a 7.25% return from the asset class, which is seen as an inflation hedge.
Part of the problem is resources. CalPERS' small infrastructure team — no more than a half-dozen investment personnel devoted to the asset class — is competing against more established infrastructure units of Canadian and European pension plans with larger amounts of money to deploy.
Plus, the state treasurer and Legislature want the pension fund to direct money to California-only projects.
CalPERS last fall allocated up to $800 million for in-state infrastructure projects and is exploring several options, including investing in public-private partnerships that could build express toll lanes on existing state highways and retrofit commercial office buildings with energy-efficient systems to decrease utility costs.
But some issues have raised caution flags, such as disputes over the use of private engineers in public-private partnerships. “Public-private partnerships that have occurred in the United States have had their controversies,” said Laurie Weir, a CalPERS portfolio manager heading the fund's California investment initiatives.
Still, Ms. Weir said CalPERS has been looking at the $1 billion Presidio Parkway Project, replacing access roads to San Francisco's Golden Gate Bridge, as an example of an investment it could make. CalPERS could follow the so-called “availability payment” model that allows private contractors and infrastructure investors to reap investment returns from transportation projects without the use of tolls.