An infrastructure pilot project just getting underway seeks 10 public pension funds as initial investors in a program whose investment-related fees would be subsidized by federal and state agencies.
The program will “only consider projects with contracted cash flows and real rates of return of 8%,” said Jill Eicher, co-founder of the Fiduciary Infrastructure Initiative, who unveiled the pilot program Tuesday at the National Conference on Public Employee Retirement Systems conference in Chicago.
“I'm looking for 10 public pension funds, who would like to participate in our pilot,” Ms. Eicher said.
FII hasn't set a funding goal for the pilot program, although it could be as much as $1.8 billion, according to FII materials. The pilot program calls for each of the pension fund investors to commit the same amount of capital so they all have the same level of interest, Ms. Eicher said.
In all, the pilot program expects to invest in four to six projects ranging in value from $30 million to $300 million each.
The program offers an alternative and lower-fee approach to infrastructure investing than the typical infrastructure manager model because of the relationship with federal and state agencies and their paying part of the fees, Ms. Eicher said.
Ms. Eicher calls the program “a public agency pilot project” and not a public-private partnership.
Federal and state agencies participating in the program will pay, respectively, 25% and 35% of the fees, while the pension fund investors will pay the rest, Ms. Eicher said, declining to identify the agencies.
Based on a $50 million commitment, a pension fund would pay $50,000 in annual fees, compared with $1 million and 20% of profits from a typical infrastructure manager, Ms. Eicher said.
Under FII's model, pension fund investors would have to approve all projects for investment, Ms. Eicher said.
In addition, FII is offering to pension fund investors an opportunity to buy a majority interest in the general partnership overseeing the infrastructure investments.
“We want this entity to be owned by pension funds,” Ms. Eicher said at the conference.
Because of the lower return expectation, the projects FII would pursue are “under the radar of typical infrastructure” managers, Ms. Eicher said.
Ms. Eicher declined to provide further details.