A Shift in Investment Thinking
As of 2008, U.S. pension funds, along with insurance companies, are beginning to shift some of their "alternative" investment funds to infrastructure, including toll roads. Sources at Macquarie tell me that their Macquarie Infrastructure Partners fund, 47% of whose investors are U.S. entities, includes the Midwest Operating Engineers Pension Fund and Mid-Atlantic Carpenters Pension Fund among its investors. Giant CalPERS, the largest public pension fund in the country, allocated an initial $2.5 billion to infrastructure investments late in 2007.
Pension funds can invest in both debt and equity of toll road projects. It is equity investment that they are seeking when they place funds with one or more of the dozens of new infrastructure (equity) investment funds, like those from Macquarie, Goldman Sachs, Carlyle Group, etc. They can also purchase toll road revenue bonds.
But here the picture gets interesting. Public employee and union pension funds are tax-exempt entities. So when they look for toll revenue bonds to purchase, it does them no good to invest in the tax-exempt bonds of the public-sector toll agencies, which historically have built nearly all existing U.S. toll roads and bridges.
Those bonds carry a lower interest rate (usually 1-2 percentage points lower) than taxable toll revenue bonds of comparable investment grade, because interest paid on those public-sector bonds is exempt from federal taxation. But that tax exemption is useless to a pension fund that is not liable for federal taxes. If it buys such a bond, it foregoes the higher interest rates it could be getting via a comparable taxable revenue bond, thereby breaching its fiduciary duty to its pensioners.