CalPERS considers new asset class

The California Public Employees’ Retirement System is contemplating elevating infrastructure, timber, commodities and related inflation-hedging investments to an asset class.

The new allocation is not expected to siphon money from its other private equity investments.

In November, the CalPERS investment committee was scheduled to hold an asset allocation workshop to decide if “inflation-linked” investments should constitute a fifth asset class for the state pension fund, joining global public equity, private equity, real estate, and bonds and other fixed income. The goal of the proposal, which the investment staff floated in January, would be to allocate more money to assets that provide steady cash flow and a hedge against inflation.

Expect infrastructure projects to constitute the bulk of the new asset class, which would also cover commodities, inflation-linked bonds and timber.

When asked if infrastructure projects would compete for dollars that otherwise might go to other funds, CalPERS spokesman Clark McKinley said that the proposed allocation would create more opportunities for buyout firms. For example, CalPERS could choose to invest in a power plant and invite investors to commit capital alongside the state pension fund.

CalPERS says that there’s a need for $1.6 trillion to be invested in infrastructure projects in the United States over the next five years, according to a study presented to the state pension fund by the Pension Consulting Alliance Inc.

The move by CalPERS to look more at infrastructure highlights the growing interest of LPs in tempering volatility in their investment portfolios. “Many pension funds are trying to see how it fits into their risk-return profile,” says David Fann, president and CEO of PCG Asset Management LLC, an advisor to the CalPERS private equity program. —Joshua Payne