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  • Severely blighted urban areas will require government, non-profit organizations and entrepreneurial real estate developers to initiate urban revitalization.
  • 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
  • The Fund has committed an additional $400 million to the CPC program and invested $205 million in mortgages. million. This figure reflects only the Fund’s share of these investments. The total value of New 60,000 homes
  • CalPERS is the largest defined benefit pension fund in the United States with current assets of $192 billion US (Sept. 1st 2005). The plan covers 1.4 m. public sector employees and retirees in the State of California. Developed in state investment policy in 1992 – currently 11% of total portfolio invested in state of California including public equity firms headquartered in California ETI Policy Added focus on underserved capital markets in 2000 in ETI policy
  • 50% of CalPERS real estate is invested in state of California When DB pension fund was attacked the fund cited its ability to invest in CA as one of its key attributes. Responsible Contractors Policies for all real estate portfolio CURE pioneered with California Urban Investment Partners (CUIP) in 1997 Allocations range from $40 m to $750 m. two of the largest are MacFarlane (CUIP) and CIM
  • 16.3% annual ROI over 4 years since inception (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)
  • Appropriate compensation packages must be developed for internal money managers of targeted investment portfolios. Sensitivity to emerging trends provides early mover advantage in rapidly shifting markets. Track records and relationships remain key to fund manager selection. As with all asset classes, top quartile investment vehicles are always in demand. Commingled, pooled funds with reciprocal investment capability provide good opportunities to diversify targeted investment and reduce risk. Fund of funds vehicles can also provide diversification for pension fund investors. In both cases external money managers insulate pension funds from charges of political interference in investment selection.
  • View Public Pension Funds and Urban Revitalization Presentation

    1. 1. Public Pension Funds and Urban Revitalization June 5 th 2006 Pittsburgh, PA Regional Investment Roundtable Tessa Hebb, Senior Research Associate Lisa Hagerman, Research Fellow Labor & Worklife Program, Harvard Law School Sponsored by the Rockefeller and Ford Foundations
    2. 2. Presentation Overview <ul><ul><li>Best practice findings from four pension fund case studies </li></ul></ul><ul><ul><li>NY City & State: fixed income focus </li></ul></ul><ul><ul><li>CalPERS: private equity and real estate </li></ul></ul><ul><ul><li>MassPRIM ETIs </li></ul></ul><ul><ul><li>Implications drawn from this research </li></ul></ul>
    3. 3. Urban Investment Strategies <ul><li>Types of targeted investment </li></ul><ul><ul><ul><li>Private equity </li></ul></ul></ul><ul><ul><ul><li>Real estate </li></ul></ul></ul><ul><ul><ul><li>Fixed income </li></ul></ul></ul><ul><ul><ul><li>Infrastructure </li></ul></ul></ul><ul><ul><ul><li>Credit enhancement </li></ul></ul></ul><ul><li>Success if measured in risk adjusted rates of return </li></ul><ul><li>Pension funds are not market makers </li></ul>
    4. 4. NYCERS ETI Policy <ul><li>Returns comparable to non-targeted </li></ul><ul><li>Guided by strategic asset allocation policy </li></ul><ul><ul><li>2% across assets - majority fixed income </li></ul></ul><ul><li>August 2005 ETI policy target allocation: </li></ul><ul><ul><li>6% Fixed Income </li></ul></ul><ul><ul><li>2% Private Equity 2% Real Estate </li></ul></ul><ul><li>Geographic target (5 boroughs), capital gap </li></ul>
    5. 5. New York State (CRF) Fixed Income <ul><li>Affordable Housing Permanent Loan Program (1991) over 6,000 units 3,138 in pipeline </li></ul><ul><li>Mortgage Pass-Through Program (1981) </li></ul><ul><li>Purchased $6.8 b. in NY state mortgages </li></ul><ul><li>Home ownership for over 60,000 residents </li></ul>
    6. 6. CRF Private Equity & Real Estate <ul><li>In-state Private Equity Program </li></ul><ul><ul><li>Response to Jobs 2000 Act </li></ul></ul><ul><ul><li>$394m. committed </li></ul></ul><ul><ul><li>over $250m. target </li></ul></ul><ul><li>$25m. mixed-use real estate complex </li></ul><ul><li>NYC - 360 rental apartments </li></ul><ul><li>80% market-rate 20% low-income housing </li></ul><ul><li>Commercial - Whole Foods, YMCA </li></ul>
    7. 7. Massachusetts PRIM ETIs <ul><li>1983 legislative mandate to target in-state </li></ul><ul><li>2003 ETI Policy created </li></ul><ul><li>Up to 2% across asset classes </li></ul><ul><li>$140m. committed $80.8m. deployed </li></ul><ul><li>Canyon Johnson: Charlestown bakery to affordable & market-rate housing </li></ul>
    8. 8. CalPERS’ Targeted Investments <ul><li>Geographic targeting: underserved capital markets </li></ul><ul><li>Real estate – CURE Program </li></ul><ul><li> ($3.4 b. committed) </li></ul><ul><li>Private equity – California Initiative </li></ul><ul><li>($500 m. committed) </li></ul>
    9. 9. CalPERS’ Real Estate <ul><li>Thirteen vehicles in targeted real estate </li></ul><ul><li>Broad geographic focus </li></ul><ul><li>‘ Location, location, location’ </li></ul><ul><li>CURE program initiated in 1997 </li></ul><ul><li>IRR 22.2% since inception </li></ul>
    10. 10. Targeted Investment in Urban Revitalization – Hollywood CA Woolworth Building: Hollywood CA CIM Group
    11. 11. CalPERS Private Equity <ul><ul><li>California Initiative started in 2000 </li></ul></ul><ul><ul><li>Ten vehicles of varying types across all stages </li></ul></ul><ul><ul><li>Large and small investments - $200 m. to $10 m. </li></ul></ul>
    12. 12. CalPERS’: California Initiative Pacific Community Ventures: Planet Organics – San Francisco
    13. 13. Steps in Targeting Investment <ul><li>Board level champion </li></ul><ul><li>Board direction “let’s look at..” </li></ul><ul><li>Staff get outside expert study </li></ul><ul><li>Boards set broad targets </li></ul><ul><li>Select appropriate asset class and amount </li></ul><ul><li>Issue RFP </li></ul><ul><li>Hire top-quartile manager </li></ul>
    14. 14. Best Practice in Pension Fund Urban Investment <ul><li>Success is measured first in risk-adjusted rates of return </li></ul><ul><li>Geographic rather than social targeting </li></ul><ul><li>Set broad targets </li></ul><ul><li>Allow top-quartile vehicles to do their job </li></ul>
    15. 15. Conclusion <ul><li>Targeted investment can generate risk-adjusted rates of return and healthy vibrant communities </li></ul><ul><li>Pension funds are not excessive risk-takers or market makers </li></ul><ul><li>Best practice in targeted investing is important for success </li></ul><ul><li>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? </li></ul><ul><li>For more information visit: http://urban.ouce.ox.ac.uk </li></ul>

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