Toll roads, renewable energy systems, water resources, and wastewater treatment plants – are definitely not some typical projects one would expect to find in the investment portfolio of a public pension plan.
However, these types of revenue-generating, long-term oriented infrastructure projects are gaining some popularity and see billions of public pension investment dollars annually in the United States. According to a recent report, 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 about 18 percent of American-based institutional investment in infrastructure. And, 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.
One of the largest pension funds, the California Public Employees’ Retirement System (CalPERS), is known to like public projects. The fund allocated $1 billion along with an Australian pension fund, for investments in infrastructure. CalPERS also has a 10 percent equity stake in the Indiana Toll Road, which is its first U.S. transportation investment. CalPERS purchased a 10 percent share of the concession firm that operates and maintains the 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 is not just simply about mere roads and bridges.
In fact, projects related to clean energy and power transmission systems have also caught the eye of pension investors.
The California State Teachers’ Retirement System 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 also invested in energy projects.
Other large infrastructure projects related to ports and airports are equally attractive to pension investors. Airports throughout the world have reached out to private sector firms to launch public private partnerships. Funding is abundant and often pension investors have to scramble to be allowed to invest.
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.
Large infrastructure projects provide both jobs and economic stability in areas where projects are located. For that reason, some public pension funds seek to invest as much as possible in their home states. Economic development groups love the results that come from public private partnerships and often work hard to link public officials with investors as well as contractors who perform the work.
Although public pension investment in other countries – particularly Canada and Australia – have far outpaced those in the United States, American infrastructure investments will continue to grow. There is little doubt about that. Public projects, especially infrastructure projects, represent large, stable investment opportunities that will provide safe and predictable revenue over a long period of time. That is exactly what investors seek.