California State Teachers鈥� Retirement System (CalSTRS) is to consider investing in infrastructure debt as part of its $10.9bn (鈧�9.2bn) 鈥渋nflation sensitive鈥� portfolio.
In an investment committee report, the $307bn pension fund said 鈥渢he team will explore and evaluate the merits of establishing an infrastructure debt strategy鈥�, citing the potential for 鈥減ortfolio diversification and attractive risk-adjusted returns and cash yield鈥�.
CalSTRS has been expanding its infrastructure equity portfolio in recent years, which is expected to make up between 65% and 70% of inflation-sensitive portfolio over the coming 12 months, but it has yet to invest in infrastructure debt.
In a report for its investment committee this week, CalSTRS said it expects the inflation-sensitive portfolio to rise from 4% to 6% of total assets by 2023, and the expansion would 鈥渇ocus on infrastructure investments鈥�.
Infrastructure assets held by the pension fund are expected to rise by $1.5bn over the coming fiscal year.
鈥淭he team was very busy in the infrastructure market during the past year and we continue to expect there to be a growing number of opportunities both in the US, Asia and Europe,鈥� it said.
CalSTRS will also monitor opportunities in emerging markets.
The pension fund said it would also increase its exposure to renewables, which make up part of its $1.58bn sub-portfolio of low-carbon investments, but only where the risk-return metrics were justified.
鈥淗owever, we are very much aware of the heated competition for many of these assets and have walked away from assets that we believe are overpriced,鈥� it said.
As for the pension fund鈥檚 larger $37.2bn real estate portfolio, which represents around 12% of total assets, CalSTRS said it would focus on assets that can provide 鈥渄urable income鈥�, including multifamily, industrial, and specialist property types, together with private debt investments.
It will also pursue 鈥渄evelop-to-core鈥� strategies in the industrial, life-sciences and certain residential sectors, and 鈥渟eek out opportunities to take advantage of the dislocation cause by COVID and the pending economic recovery鈥�.
CalSTRS also plans to expand its use of 鈥渉ighly controlled joint ventures鈥� and strategic investments in real estate operating companies.
鈥淓xpanding these highly aligned structures will generate higher returns through improved deal flow and fee savings,鈥� it said.
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