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
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