As infrastructure managers carve the asset class into increasingly specialist strategies, the New York City Comptroller’s Office, one of the largest institutional investors globally managing a combined USD 306bn, is sticking with its diversified infrastructure programme it has built over 14 years, favouring broad exposure across sectors, geographies and risk profiles over concentrated bets on any single market or theme.

Although the investor, which advises the boards of the city’s five pension Systems covering teachers, police officers, firefighters, and other municipal workers, appears to be tinkering with this strategy at the edges.

The infrastructure fund market has launched an array of sector focused funds, from AI and data centres to fibre, cloud services and the energy transition. Recent launches include EQT’s AI infrastructure strategy, seeded by data centre operator EdgeConneX, and L&G’s digital infrastructure fund, which targets data centres, fibre, wireless connectivity and cloud services.

But the New York City Comptroller’s Office avoids country-specific funds and leaves individual sector and market decisions to managers with local expertise, said Petya Nikolova, head of infrastructure investments at the Comptroller’s Office. Instead it wants broad exposure across infrastructure rather than large bets on individual themes. “The real belief is in diversification,” she added.

The pension fund giant is looking to grow its overall infrastructure allocation to roughly 5% of its total assets under management, while current invested capital remains closer to 3% plus, according to Nikolova.

That caution also shapes how the New York Systems approach the sector themes currently attracting the most capital. Nikolova pointed to energy transition as an example of why the New York Systems avoids concentrating too much exposure in a single theme.

Renewable platforms and project pipelines attracted high valuations before rising interest rates, inflation and changing policy incentives affected parts of the market, she said.

“If these risks materialise, then your performance would suffer,” Nikolova said. “So therefore, we prefer diversified funds.”

The same logic applies to AI and data centres. Nikolova said the New York Systems are monitoring the sector but is not currently considering AI-focused funds.

“It’s here, it’s going to be here. So, we need to be aware of it,” she said. “The only question is, how do you play? And we don’t go sector specific.”

Instead, the New York Systems expect its managers to decide how to allocate within fast-moving themes, including where valuations are attractive and which markets offer better access to power.

The same caution applies to risk labels. The New York Systems, which has invested about USD 3.3bn in infrastructure versus USD 9.6bn, or 9.9%, in private equity and USD 6.7bn, or 6.9%, in private real estate, does not set rigid return targets by label such as core, core-plus or value-add, she said.

Instead, it looks through the label to the underlying assets and risks, including construction exposure, revenue profile, regulation, interest rate sensitivity and development risk.

“I don’t like labels, because sometimes I think there is a mismatch between the label and the risk and return,” Nikolova said.

Steady deployment

The New York Systems also aims to deploy steadily rather than move in and out of the market. “You don’t want to be in the market one year deploying 1bn, the next year 3bn, the next year 1bn again,” she said. “What you want is to be consistent, because markets are different,” but declined to disclose annual infrastructure pacing or dry powder.

That does not mean the portfolio is standing still. Recent commitments, including USD 113.9m to Actis Energy Fund 6, USD 166.7m to Basalt Infrastructure Partners V, and USD 100m to Fengate Infrastructure Fund V, show the New York Systems are still adding exposure where managers can provide diversification by geography and asset type.

Recent infrastructure commitments by the New York Systems include several European or Europe-focused funds.

Nikolova said she wants exposure to Europe but does not run the portfolio according to fixed geographic targets. “We want European funds,” she said. “It’s just that we don’t have targets.” Europe offers diversification because the asset mix differs from the US, Nikolova said.

European infrastructure can include more transportation assets and different regulatory regimes, while the US market has more exposure to areas such as midstream and digital infrastructure.

Nikolova said the New York Systems does not seek funds focused on a single country, such as only the UK or only France, because that would expose the portfolio too heavily to one regulatory and market backdrop.

The same logic has also pushed the New York Systems to broaden the size of managers they back.

Mid-market push

While the strategy has remained consistent, the New York Systems has adjusted the portfolio at the edges.

One of the main shifts has been the addition of mid-market infrastructure funds over the past five years. Nikolova said the New York Systems still backs large-cap managers but added mid-market funds because some of its existing managers had raised larger vehicles and moved toward bigger deals, creating the risk that the New York Systems would miss smaller assets.

“The reason was that we saw our managers becoming larger,” she said. “What this means is that you are missing opportunities that are in a different check size category.”

The move has helped broaden the New York Systems manager base and give them exposure to parts of the market that may sit below the deal-size threshold of larger platforms, she said.

Tools around the main fund programme

The New York Systems also gain exposure to emerging infrastructure managers through its fund-of-funds BIS NYC Infrastructure Emerging Manager Opportunities Fund II, a separate managed account managed by BlackRock.

Nikolova said the mandate has been active for about six years, allowing the New York Systems to access smaller managers without requiring its internal team to assess each opportunity or write smaller cheques directly.

The New York Systems remain primarily a fund investor and do not make direct infrastructure investments, Nikolova said. But it does make co-investments alongside existing managers, using them to fine-tune exposures across the portfolio.

“We use our co-investment programme as a portfolio tool,” she said.

Caution on development risk

One area where the city pension New York Systems remain cautious is greenfield infrastructure. Nikolova said the New York Systems does not have formal limits on greenfield exposure but generally favours existing assets. “We prefer more brownfield infrastructure versus greenfield,” she said.

That does not mean the New York Systems will rule out all development risk. Nikolova said the question is whether a fund has one greenfield asset or whether the entire strategy depends on development risk. Supply chain issues, construction risk and cost inflation remain important considerations, she said.

The infrastructure market has changed significantly since the city pension New York Systems first entered the asset class 14 years ago. Funds have become larger; specialist strategies have proliferated and themes such as AI have emerged quickly.

“The market changes as well,” Nikolova said. “So you don’t know, but what you’re hoping for is that your manager has the tools and the ecosystem and the process and the people to manage all these changes and invest on your behalf.”