The California State Teachers' Retirement System is hopping on the infrastructure bandwagon, committing $500 million to roads, utilities and more.

The pension fund Tuesday announced a partnership with Industry Funds Management of Melbourne, Australia. The deal shows the increased appetite for investing in public works projects by big institutional investors.

CalSTRS officials said the deal is an outgrowth of the financial markets' collapse in 2008, when the pension fund lost billions.

"What the recent economic crisis demonstrated was the need for greater diversification in our investment portfolio, in areas that would also serve as a hedge against inflation," said Harry Keiley, chairman of CalSTRS' investment committee, in a prepared statement.

CalSTRS, like most other pension funds, is still recovering from 2008. The California fund is badly underfunded and is asking the Legislature to increase taxpayers and teachers' annual contributions. Last week CalSTRS reduced its investment return forecast by a quarter point, to 7.5 percent.

By partnering with the Australian firm, the California pension fund "selected a well-established and well-respected partner precisely because CalSTRS is relatively new to the sector," said Chris Ailman, chief investment officer at CalSTRS.

CalSTRS' sister fund, CalPERS, is also moving heavily into infrastructure. In December the California Public Employees' Retirement System bought a stake in an underwater electrical transmission line that connects New Jersey and Long Island, N.Y. A year earlier it bought part of a British airport. It has committed a total of $5 billion to infrastructure deals, including $800 million in California.

Governments are increasingly interested in such deals, viewing private investment as a ready source of cash.

The city of Sacramento is edging closer toward a deal to lease out its parking operations, hoping to raise $185 million or more to help fund a new downtown sports arena.

© Copyright The Sacramento Bee. All rights reserved.

Call The Bee's Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.

• Read more articles by Dale Kasler