Illinois Launches New Type of Infrastructure, Real Estate Fund

Illinois has made the first allocation from a first–of-its-kind evergreen fund dedicated to impact investments in infrastructure and real estate projects across the state, State Treasurer Michael Frerichs announced last week. The First Fund was designed to address the need for investments in the state’s decaying infrastructure. 

While some states have established funds to invest in businesses in their states, the First Fund is unique as the first state-run real assets fund focused on local development, according to the Illinois press release. Frerichs’ office will allocate the $1.5 billion fund to funds that make investments in infrastructure. 

In Illinois, the percentage of GDP dedicated to infrastructure spending fell 0.62 percentage points between 2002 and 2016, according to state public infrastructure data, dropping to 1.84% from 2.46%. The state also has a $24 billion backlog of deferred maintenance for state facilities and educational institutions, a factor that resulted in a C- rating from the American Society of Civil Engineers in 2018.  

In July 2021, the Illinois General Assembly passed the Infrastructure Development Act, sponsored by Frerichs, authorizing up to 5% of Illinois’ investment portfolio assets to infrastructure development projects in the state.  

According to investment policy parameters, at least 85% of First Fund assets must be invested in Illinois–based development firms. Up to 15% may be invested outside of Illinois, but only with investment managers that have a track record of investing in the state. 

No more than 15% of the fund can be allocated to a single investment at commitment, and distributions may be reinvested into the First Fund without counting against the mandated 5%-of-the-state-portfolio cap. 

Investments that receive money under the Infrastructure Development Act are required to invest twice the capital received from the state over the lifetime of the fund, with a runway to meet this goal of either four years or when the recipient fund has drawn more than 60% of its investable capital from the First Fund, whichever occurs first. Individual funds must have a minimum of $10 million under management to be eligible for investment by the First Fund. 

Illinois has set specific objectives for the fund: to make a local impact, to grow the local economy and to create jobs through infrastructure investment. The state also seeks to make sustainable investments, with a preference for allocating funds to managers with experience in environmental and renewable projects, according to the release. 

The treasurer’s office also stated it will seek to allocate funds to diverse managers, including firms that are more than 50% owned by minorities, women, veterans, disabled individuals, and firms that have experience investing in infrastructure projects in moderate- and low-income communities.  

The law took effect in January 2022, but last week marked the initial allocation of capital: $75 million in Ullico Inc.’s Ullico Infrastructure Fund, which invests primarily in energy, power and utilities projects across the state and provides insurance and investment solutions to labor organizations and union employees in the state.  

“The new FIRST Fund does triple duty for the state of Illinois,” Frerichs said in a statement. “We are making critical investments in Illinois infrastructure to help meet the enormous needs of our state, supporting job creation for union and other skilled professionals, and earning money for Illinois taxpayers.”  

The RockCreek Group will serve as investment adviser to the Illinois State Treasurer’s Office and will provide investment advice for the First Fund.