Sovereign Wealth, Pension Funds May Help Build High Speed Rail
A report out of Bloomberg News today indicates that California is beginning to walk down a path this blog has long suggested: looking to pension and sovereign wealth funds to help fund the high speed rail project.
From the article:
California is courting sovereign- wealth funds, pensions and endowments for more than $50 billion to build Governor Jerry Brown’s proposed bullet train to link the state’s largest cities, the most expensive public-works project in U.S. history….
“We have active interest in and outreach to sovereign funds and foreign consortia that are looking at us,” Jeffrey Morales, chief executive of the California High-Speed Rail Authority, said Nov. 29.
In addition to sovereign wealth funds, or state-owned investment pools, other potential investors include companies that will build and operate trains and stations, he said.
“Pension funds are definitely a potential investor,” Morales said. “They have been increasingly looking at infrastructure as an investment opportunity.”
These sources of investment all make a ton of sense. Infrastructure provides stable returns, especially high speed rail. Virtually every high speed rail line around the world from turns a profit, from Japan and France, Spain, Russia, Taiwan, to even the Amtrak Acela. Now those are operating profits, and if people investing in construction are expecting a profit, then they’re going to have to be patient or expect at least small returns for a while. Which for sovereign wealth funds and pension funds is fine.
The Bloomberg article includes some typical skepticism – costs could soar, ridership might not materialize – but assuming there’s no political or legal meddling to drive up the cost, I doubt overruns will be a problem. In fact, under Governor Brown’s leadership, costs are being driven down. And ridership has never been a problem for any HSR route in the world.
Will California’s pension funds be interested? After all, they have been investing in infrastructure in recent years, including their 2010 purchase of a stake in London’s Gatwick Airport. Here’s what the Bloomberg story has to say about that:
Neither the California Public Employees’ Retirement System, which is the largest U.S. pension, nor the California State Teachers’ Retirement System, the second-largest, have committed money to high-speed rail, according to spokesmen.
In 2011, the Calpers board voted to invest as much as $800 million in transportation, energy, natural resources, utilities, water and communications in California during the next three years. Calpers has a target of investing 2 percent of its $244.2 billion of assets in infrastructure.
A spokesman for Calpers, Joe DeAnda, and a spokesman for the teachers’ fund, Ricardo Duran, declined to comment on whether asset managers were considering high-speed rail, saying their funds don’t speculate on possible investments.
My guess is they are indeed looking at investing in HSR when the time comes. It’s a smart investment for them, and it’s only appropriate that the public’s pension dollars are invested in the state’s infrastructure.
I wouldn’t want these kinds of investors to be the primary source of additional HSR funding. They have a role to play, no doubt, but it should be in combination with other public funding sources. SPUR showed how California could pay for HSR all on its own even without recourse to CalPERS or sovereign wealth funds. But if those latter groups want to bring money to the table, it’s worth listening to them.