A report issued by global private equity advisor Altius Associates reportedly forecasts that institutional investors are set to increase their allocations to infrastructure funds from 1 percent to 5 percent of total assets over the next decade. If such a prediction comes to pass, that’s good news for California infrastructure.
The press release announcing the report, which is only available to the firm’s clients, doesn’t get into actual dollar numbers, but a quick look at the state of California’s employee pension fund, one of the largest in the world, provides an interesting hypothetical example.
As of Jan 31, 2013, the $248.8 billion fund had invested $3.2 billion in infrastructure (which it groups as an asset class with forestry). This represented a one percent allocation within its total investment portfolio. If the Altius prediction is correct, CalPERS might reasonably be expected to invest at least that amount purely in infrastructure and to grow that allocation to more than $12 billion by 2023. Not all of this money would be invested in the state but, in 2011, CalPERS did commit to invest $800 million over three years solely in California infrastructure.
And CalPERS is not the only institutional investor eyeing California infrastructure. The state has strong appeal for both domestic and foreign funds because of the size and strength of California’s economy.
Of course, creating a robust P3 sector to handle investor demand and provide good projects for investment will be critical for the state’s ability to attract institutional investors as those allocations increase.