California Public Employees' Retirement System (CalPERS), the largest public pension fund in the US with more than $277 billion in assets, will increase its allocation to infrastructure and forestland from 2% to 3%
The move is part of a broader effort to lower investment risk. The changes reflect new demographic assumptions - specifically that public employees are living longer - and are designed to ensure the system's long-term sustainability.
The pension fund will reduce its target allocation for private equity from 14% to 12%. Equities will drop from 50% to 47%, while fixed income rises from 17% to 19%. Real estate and inflation-sensitive securities each jump by two percentage points to 11% and 6%, respectively, and cash will drop from 4% to 2%.
The infrastructure asset class is seeing as hedged against inflation and a reliable source of recurring income. In fact, nearly 60% of investors with an infrastructure allocation plan on increasing their exposure over the next 12 months, according to Preqin's.
Among infrastructure investors, pension funds are a relatively new player, having been active in the space for just over a decade. Pension fund interest in infrastructure investments has been driven by the desire to diversify portfolios away from cyclical investments in stocks and bonds into long-term, non-cyclical investments that match the long tenors of pension liabilities.