Public Pension Funds and Urban Revitalization

1
Public Pension Funds and Urban Revitalization

• June 7th 2006
• Baltimore, MD
• Leadership Forum
• Tessa Hebb, Senior Research Associate
• Lisa Hagerman, Research Fellow
• Labor Worklife Program, Harvard Law School
• Sponsored by the Rockefeller and Ford Foundations
  

2
Presentation Overview

• Best practice findings from four pension fund
  case studies
• NY City State fixed income focus
• CalPERS private equity and real estate
• MassPRIM ETI selection process
• Implications drawn from this research

3
Urban Investment Strategies

• Types of targeted investment
• Private equity
• Real estate
• Fixed income
• Infrastructure
• Credit enhancement
• Success if measured in risk adjusted rates of
  return
• Pension funds are not market makers

4
NYCERS ETI Policy

• Guided by strategic asset allocation policy
• 2 across assets - majority to date in fixed
  income
• August 2005 policy asset allocation target
• 6 Fixed Income
• 2 Private Equity 2 Real Estate
• Geographic target (5 boroughs) and to fill
  capital gap

5
NYCERS Fixed Income Investments

• Returns comparable to traditional investments
• 10 year net return forward-rate commitments
  9.33
• Outperformed benchmark Lehman Aggregate 7.72
• Investments in national funds leverage fund
• (i.e. HIT 500m. in NYC ) to make direct
  investments
• Investments programmatic - deflect political
  interference

6
New York State (CRF)Fixed Income

• Affordable Housing Permanent Loan Program (1991)
  over 6,000 units 3,138 in pipeline
• Mortgage Pass-Through Program (1981)
• Purchased 6.8 b. in NY state mortgages
• Home ownership for over 60,000 residents

7
CRF Private Equity Real Estate

• In-state Private Equity Program
• Response to Jobs 2000 Act
• 364m. committed / over 250m. target
• Real Estate 25m. mixed use complex
• NYC - 360 rental apartments
• 80 market-rate 20 low-income housing
• Commercial - Whole Foods, YMCA

8
Massachusetts PRIM ETIs

• 1983 legislative mandate to target in-state
• 2003 ETI Policy created
• 135m. committed 80.8m. deployed
• Canyon Johnson,New Boston, Intercontinental
  Access Capital, Flagship, Castile Ventures
• 2006 ETI RFP

9
CalPERS Targeted Investments

• Geographic targeting underserved capital markets
  
• Real estate CURE Program
• (3.4 b. committed)
• Private equity California Initiative
• (500 m. committed)

10
CalPERS Real Estate

• Thirteen vehicles in targeted real estate
• Broad geographic focus
• Location, location, location
• CURE program initiated in 1997
• IRR 22.2 since inception

11
Targeted Investment in Urban Revitalization
Hollywood CA
Woolworth Building Hollywood CA
CIM Group
12
CalPERS Private Equity

• California Initiative started in 2000
• Ten vehicles of varying types across all stages
• Large and small investments - 200 m. to 10 m.

13
CalPERS California InitiativePacific Community
Ventures
Planet Organics San Francisco
14
Impacts

• 16.3 annual ROI in the last year (Sept. 2005)
• Leveraged 725 m. from other investors.
• Invested in 83 companies
• 51 companies located in underserved capital
  markets
• Reported 2,000 jobs created (June 2005)

15
Steps in Targeting Investment

• Board level champion
• Board direction lets look at..
• Staff get outside expert study
• Boards set broad targets
• Select appropriate asset class and amount
• Issue RFP
• Hire top-quartile manager

16
Best Practice in Pension Fund Urban Investment

• Success is measured first in risk-adjusted rates
  of return
• Geographic rather than social targeting
• Set broad targets
• Allow top-quartile vehicles to do their job

17
Conclusion

• Targeted investment can generate risk-adjusted
  rates of return and healthy vibrant communities
• Pension funds are not excessive risk-takers or
  market makers
• Best practice in targeted investing is important
  for success
• While these cases look at some of the nations
  largest cities, what are the market-rate
  opportunities in urban revitalization in the
  smaller US cities?
• For more information visit http//urban.ouce.ox.a
  c.uk