HCS is officially a PRI Network Supporter 
HCS is officially a PRI Network Supporter
By Marco Trbovich
Vice President of Strategic Communications
for Tricom Associates
Representatives of the nation’s two largest public pension funds, the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS), were among pension fund managers, union and community leaders at a Responsible Investment Forum in Los Angeles convened by Heartland Capital Strategies to address the urgent need for infrastructure.
Kirsten Spalding, California Director for CERES, who led the forum’s discussion of the opportunities and challenges facing pension funds and investors interested in infrastructure projects, noted that California alone has “$500 to $600 billion in infrastructure needs over the next 10 to 20 years.” Nationally the figure exceeds $2 trillion.
CERES is a partnership between corporations and the environmental community that has more recently brought union pension funds into the discourse about how to build a more sustainable economy, consistent with the United Nations Environmental, Social and Governance (ESG) principles.
Also participating in the forum were Responsible Investment funds and partners, including the Union Labor Life Insurance Company (ULLICO), the AFL-CIO Housing Investment Trust, North Sky Capital, Impact Infrastructure, the Yucaipa Family Funds and the California Infrastructure Bank, among others.
“Infrastructure is an important way for pension funds to help grow the economy, and only when the economy grows do the pension funds grow,” explained Dennak Murphy, Director of Capital Stewardship for the Service Employees International Union (SEIU). Murphy noted that last Fall the CalPERS Board decided to invest $800 million over the next 10 years in California, largely on infrastructure.
Brian Rice, the CalSTRS Investment Officer responsible for overseeing risk in the pension fund’s multi-asset Green Initiative Task Force, said the pension fund is using its experience to work with CERES in advising companies on how to create greater sustainability risk awareness, consistent with the UN ESG principles.
In 2010, CalSTRS developed an Infrastructure Investment program that will operate through limited partnerships, co-investments, consortiums, separate accounts and direct investments. By February of this year, $650 million had already committed to the program. Fifty percent of the program’s allocations will be in North America.
Murphy also shared with conferees the formation of a West Coast Infrastructure Exchange as part of an initiative announced the previous day in Vancouver by leaders from British Columbia, California, Oregon and Washington today endorsed a bold new action agenda to grow the clean economy along the West Coast.
In response to the $2.2 trillion infrastructure gap indentified by the American Society of Civil Engineers, state government leaders and stakeholders along the West Coast are actively strategizing on how best to move in this complex environment. A strategic plan is being developed that will determine the project activities, products and services that the Exchange would offer.
“One of the challenges for CalSTRS,” commented North Sky Capital’s Managing Director Mark Austin is to allocate large dollar amounts into the marker. At times, size issues can make the return game that much harder.”
Formidable Challenges
Spalding’s panel identified a number of challenges being confronted in advancing sustainable investment in infrastructure, including:
“Because of tax exempt bonds and bank credit issues,” explained Austin, “there is not a lot of capital out there for this kind of investment,” a problem complicated, according to Dennak Murphy, by the fact that “we’re dealing with different cultures.
“Investor culture is very different from the procurers’ culture.”
John Williams, Impact Infrastructure’s CEO, noted however that “the costs of investing today in a down market are very attractive, versus a hot market.”
Needed Innovations
Spalding also cited the challenge of finding resources to act as mediators between the two cultures: “So pension funds aren’t the ones both creating and funding the deals, so that we hold onto our appropriate risks.”
Several conferees cited the crucial importance of data for the public entities and Spalding suggested the possibility of a clearinghouse being created that valid data for both investors and public entities.
Williams said that Impact Infrastructure is developing a system of credible metrics that will prove of value to both investors and public entities encouraging investment in infrastructure projects so that both parties will be negotiating with factual clarity.
“I look at this by comparing it to private equity a decade ago,” Murphy concluded. “If this nut can be cracked from the pension side and from the state’s needs, it’s conceivable that in five, 10, 15 years we could be looking at 10 to 15 percent allocations [from pension funds]. Then you’re talking about real investment dollars.”
The forum, the second of four sponsored by Heartland Capital Strategies in collaboration with the Blue Green Alliance, focused on the need to revitalize the real economy through value-added investments in the nation’s infrastructure and by developing new sources of clean energy.
"Construction families are losing their homes, yet the construction industry has the money to reemploy. We need to provide life support to prevent the health and welfare funds from atrophying. We need to be clear thinking champions to promote the pension investment agenda," concluded Art Lujan of the AFL-CIO, Building and Construction Trades Dept.
