Public Pension Funds and Urban Revitalization

June 5th 2006Pittsburgh, PA

Regional Investment Roundtable

Tessa Hebb, Senior Research AssociateLisa Hagerman, Research Fellow

Labor & Worklife Program, Harvard Law School

Sponsored by the Rockefeller and Ford Foundations

Presentation Overview

Best practice findings from four pension fund case studies

NY City & State: fixed income focus

CalPERS: private equity and real estate

MassPRIM ETIs

Implications drawn from this research

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

NYCERS ETI Policy

Returns comparable to non-targeted

Guided by strategic asset allocation policy 2% across assets - majority fixed income

August 2005 ETI policy target allocation: 6% Fixed Income 2% Private Equity 2% Real Estate

Geographic target (5 boroughs), capital gap

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

CRF Private Equity & Real Estate

In-state Private Equity Program Response to Jobs 2000 Act $394m. committed over $250m. target

$25m. mixed-use real estate complex NYC - 360 rental apartments 80% market-rate 20% low-income housing Commercial - Whole Foods, YMCA

Massachusetts PRIM ETIs 1983 legislative mandate to target in-state

2003 ETI Policy created

Up to 2% across asset classes

$140m. committed $80.8m. deployed

Canyon Johnson: Charlestown bakery to affordable & market-rate housing

CalPERS’ Targeted Investments

Geographic targeting: underserved capital markets

Real estate – CURE Program ($3.4 b. committed)

Private equity – California Initiative ($500 m. committed)

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

Targeted Investment in Urban Revitalization – Hollywood CA

Woolworth Building: Hollywood CA CIM Group

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.

CalPERS’: California InitiativePacific Community Ventures:

Planet Organics – San Francisco

Steps in Targeting Investment Board level champion Board direction “let’s look at..” Staff get outside expert study Boards set broad targets Select appropriate asset class and

amount Issue RFP Hire top-quartile manager

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

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 nation’s largest cities, what are the market-rate opportunities in urban revitalization in the smaller US cities?

For more information visit: http://urban.ouce.ox.ac.uk