Wednesday, March 26, 2008

Investment bankers and TxDOT push pension fund investment in Texas toll roads

Pension funds sought to finance toll roads


R.G. Ratcliffe
San Antonio Express-News
Copyright 2008

AUSTIN — Investment bankers and a state highway official Tuesday told legislators the state's two largest pension funds should consider investing some of their $130 billion in holdings into building toll roads in Texas.

Senate Finance Chairman Steve Ogden, R-Bryan, said he thinks it is a good idea, especially because the Teacher Retirement System of Texas last year invested $100 million into building a casino in Las Vegas.

"It makes zero sense for our retirement funds to be investing in casinos in Las Vegas and then say they can't invest in toll roads in Texas," Ogden said.

But the concept was met with skepticism by some of Ogden's fellow lawmakers as the Senate finance and state affairs committees met in joint session.

Some noted it could lead to foreign infrastructure investing that would be as controversial as the casino project, while others noted that only a portion of the investment funds could be used for financing toll roads.

Texas has turned to the construction of toll roads because of a shortage of tax dollars and federal funding. The toll roads have been met with resident opposition in parts of the state.

The investment bankers and a state highway planner were enthusiastic Tuesday about the prospects of using some of the $22 billion held by the Employees Retirement System of Texas and the $108 billion teacher retirement system to invest in state infrastructure needs.

Phillip Russell, assistant executive director of the Texas Department of Transportation, said pension fund investments could free some state highway money for other projects while giving the funds stability they don't have in the stock market.

Thomas Osborne of the UBS Investment Bank said pension fund investments in infrastructure projects already are common in Australia and Canada, and he said California's pension funds have begun making such investments. He said such investing needs to be carefully structured but that it can "help bridge the gap" in road construction funding.

Pension fund officials said they can make such investments already but noted there are problems with them.

Britt Harris, the chief investment officer for the teacher fund, said infrastructure investing will grow in the future, and he noted that China in the next six years will need to start building highways equal to those now existing in the United States. He said such an infrastructure investment may be worthwhile because China will pay a high rate of return for the investment.

But Harris told lawmakers that if Texas offers him a 12 percent return on building a toll road and Oklahoma offers him a 15 percent return, he will be obligated to the retired teachers to finance the Oklahoma project.

Employees Retirement System Executive Director Ann Fuelberg said any such investments in Texas would have to be carefully structured to avoid federal IRS rules against self-dealing.

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