According to a CalPERS news release, infrastructure was the last component of a new asset class to be approved by the CalPERS Board, which earlier adopted policies for the three other sub-asset classes including commodities, inflation-linked bonds, and forestland.
The new asset class involves investments in infrastructure including transportation, ports, energy, water, and communications projects (See CalPERS Looks into Infrastructure Investments ).
“There are vast investment opportunities in infrastructure where we can generate solid returns for our fund while supporting essential community services that are crucial to continued economic development,” said Rob Feckner, CalPERS Board President, in the announcement.
CalPERS said the new policy will:
- Allocate up to 3% of total market assets to infrastructure through the year 2010;
- Achieve an average annual investment return of 5% over the rate of inflation, net of fees, over five years;
- Invest in both public and private infrastructure including, but not limited to, transportation, energy, natural resources, utilities, water, communications, and other social support services;
- Secure agreements from investment vehicle managers to follow CalPERS Responsible Contractor Program guidelines for fair labor practices; and
- Minimize potential adverse impacts to public employee jobs in the development and operation of infrastructure projects.
“Several components of our new asset class might come into play in the eventual construction of bridges, airports, utilities, water systems, and other infrastructure,” said George Diehr, Investment Committee Chair, in the announcement. “We’re looking for long-term economic value by providing safe, reliable, efficient, and high quality services that are vital for society.”
CalPERS had $4.7 billion in its inflation-linked asset class (ILAC) as of June 30, 2008, or 2% of the total fund.
In December 2007, the Board formalized the ILAC program as a fifth asset class with a target allocation of up to 5% of total CalPERS market value over the next three years. The other asset classes are Global Equity (public stocks), Global Fixed Income, Alternative Investment Management (private equity), and Real Estate.