Toll roads, clean and renewable energy, water and wastewater treatment plants – not the typical projects one would expect to find in the investment portfolio of a public pension plan. Remarkably, these types of income-generating, long-term asset infrastructure projects are becoming increasingly appealing, attracting billions of public pension investment dollars annually in the United States.
According to a report issued last month by Preqin, a leading information source for the alternative assets industry, the top 10 public pension funds quadrupled their investments in infrastructure in the last five years – to more than $17 billion.
Public pension funds represent 18 percent of American-based institutional investors in infrastructure. Preqin also reports that at the end of the first quarter of this year, the number of public pension funds investing in unlisted infrastructure funds rose 12 percent from last year and 76 percent from five years ago.
Probably the most notable of those investments is California Public Employees’ Retirement System (CalPERS) $1 billion deal with an Australian pension fund, to invest in Australian and Asian Pacific infrastructure. CalPERS also has a 10 percent equity stake in the Indiana Toll Road, its first U.S. transportation investment. CalPERS purchased a 10 percent share of the concession company that operates and maintains the more than 150-mile toll road. The company holds exclusive rights on collection of tolls on the road for 65 years, making it a long-term money-maker for CalPERS.
But, infrastructure doesn’t just mean roads and bridges. A number of projects related to clean energy and power transmission systems have also caught the eye of public pension investors.
The California State Teachers’ Retirement System, which boasted $1.1 billion in infrastructure investments through the end of 2015, has announced it is an investor in the Neptune Regional Transmission System, an underwater system that connects New Jersey power generation to power use in Long Island, New York.
The Washington State Investment Board, the Indiana Public Retirement System and the San Francisco City & County Employees’ Retirement System have all invested in energy projects.
Through the end of April, the Employees Retirement System of Texas had committed 1.09 percent of its $24.9 billion in funds to infrastructure projects. Additionally, the Teacher Retirement System of Texas is invested in 16 infrastructure funds, showing 2.3 percent of its assets allocated to infrastructure.
Also in Texas, the Dallas Police and Fire Pension fund has entered into its fourth commitment to an infrastructure fund. Pension fund executives hope to bring their infrastructure allocation up to 6 percent of their investment assets.
Most of the infrastructure projects provide both jobs and economic stability in the area where the projects are located. For that reason, some of the public pension funds seek to invest as much as possible in their home states. CalPERS, for instance, has invested more than $1 billion since 2001 in infrastructure projects involving more than 500 companies located in California. In Fiscal Year 2015, CalPERS invested $27.8 billion in California entities, up 8.2 percent from the previous year.
Although public pension investment in other countries – particularly Canada and Australia – have far outpaced those in the United States, American infrastructure investments are expected to continue to grow. They represent something investors are looking for – a large, stable investment that will provide revenue over a long period of time.