CalSTRS to Diversify Through Infrastructure Investment
(February 8, 2012) — The California State Teachers’ Retirement System (CalSTRS) is partnering with Australia-based Industry Funds Management (IFM) on a major infrastructure investment.
The infrastructure mandate is worth a commitment of up to $500 million to invest in a diversified portfolio of core infrastructure assets in North America and Europe.
“What the recent economic crisis demonstrated was the need for greater diversification in our investment portfolio, in areas that would also serve as a hedge against inflation,” said Chairman of the CalSTRS Investment Committee, Harry Keiley, in a statement. “This type of investment aligns our goals as patient long-term investors with both the jobs generation and infrastructure improvement our economy needs.”
CalSTRS Chief Investment Officer Chris Ailman added: “We selected a well-established and well-respected partner precisely because CalSTRS is relatively new to the sector and we want to get to know it well before venturing beyond the fund structure,” noting that the decision by the scheme to invest more heavily in public works projects reflects an opportunity to partially hedge inflation risk.
Similarly, in September, the California Public Employees’ Retirement System (CalPERS) Board of Administration earmarked up to $800 million for investments in California infrastructure over the next three years. The scheme’s plan called for investments in both public and private infrastructure, including transportation, energy, natural resources, utilities, water, communications, and other social support services. “We remain committed to California’s future and the investment opportunities that run deep between our coastline, mountains and valleys,” said Rob Feckner, President of the CalPERS Board of Administration, in a statement. “We are prepared to increase our investments in infrastructure with our first and foremost goal being on investment returns, and a secondary goal of supporting essential community services that are crucial to continued economic development, a safe environment, and healthy schools and communities.”
The investment in infrastructure by the two largest funds in the United States jibes with an August study by Keefe, Bruyette & Woods (KBW) that found that alternatives have remained a popular investment choice among US institutional investors. The survey of 37 chief investment officers or other institutional investment executives with asset allocation responsibilities discovered that alternatives are expected to gain more attention, with close to 40% saying they’re seeking to increase allocations to hedge funds and commodities. Additionally, more than 30% of respondents said they are looking to add to their real estate, infrastructure, and energy investments.
Related article: Are governments coercing funds to invest, or are such funds investing on their own volition—and with their own profit in mind?