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  • Severely blighted urban areas will require government, non-profit organizations and entrepreneurial real estate developers to initiate urban revitalization.
  • 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.
  • 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.
  • 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 10 year net return as of 9/30/06 forward-rate commitments: 8.39% Outperformed benchmark: Lehman Aggregate: 6.42% Investments in national funds leverage fund (i.e. HIT $750m. in NYCCII ) to make direct investments As of June 2006 NYCERS, Police, Fire, Board of Ed & Teachers (forward commitment programs): $435m invested 22,056 units $239m committed 5,621 units
  • 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 CURE program IRR 22.2% since inception California initiative: 16.3% annual ROI for 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)
  • Canyon Johnson Urban Fund II in joint venture with Cathartes Private Investments Former warehouse converted to 146 for-sale housing units in Charlestown, MA 15 affordable 131 market-rate units Transit-oriented - next to Sullivan Square T

Transcript

  • 1. Public Pension Funds and Urban Revitalization December 6 th 2006 Boston, MA Dr. Tessa Hebb, Senior Research Associate Lisa Hagerman, Research Fellow Labor & Worklife Program, Harvard Law School Oxford University Centre for the Environment Sponsored by the Rockefeller and Ford Foundations
  • 2. Presentation Overview
      • Terminology
      • Best practice findings from pension fund case studies
      • NYCERS fixed income
      • CalPERS private equity and real estate
      • MassPRIM investment selection process
  • 3. Urban Investment Strategies
    • Targeted investment in economic development
    • Types of targeted investment
        • Private equity
        • Real estate
        • Fixed income
        • Infrastructure
        • Credit enhancement
  • 4. 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/amount
    • Issue targeted investment RFP
    • Hire top-quartile fund manager
  • 5. Best Practice in Pension Fund Urban Investment
    • Success is measured first in risk-adjusted market rates of return
    • Geographic rather than social targeting
    • Policy driven by investment philosophy not social targets
    • RFP deflects political interference
    • Set broad targets in economic development
    • Allow top-quartile vehicles to do their job
  • 6. NYCERS Targeted 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
    • Investments programmatic - deflect political interference
  • 7. CalPERS’ Targeted Investments
    • Geographic targeting: underserved capital markets
    • Real estate – CURE Program (1997)
    • ($3.4 b. committed)
    • Private equity – California Initiative (2000)
    • ($500 m. committed)
  • 8. Massachusetts PRIM 2003 Targeted Investing Policy
      • Board champion - State Treasurer
      • Outside consulting firm completed study
      • Set 5 criteria for targeted investing
      • Investment must not exceed a reasonable weighting in portfolio - comply with asset allocation policy
      • Target capital gap in underserved markets
      • Social returns will not justify a lower return
  • 9. Massachusetts PRIM 2006 Targeted Investing RFP
    • Annual RFP reduces dedicated staff time
    • Transparent fund manager selection process
    • Advertised in marketplace
    • Fund manager demonstrate will invest over 50% of portfolio in Massachusetts
  • 10. Massachusetts PRIM Manager Selection Process
    • Search committee evaluates & recommends
    • Real estate consultant may review
    • Will investments meet 5 targeted criteria?
    • Analyze ability to meet benchmarks
    • Fees
    • Investment cmte votes (outside experts)
    • PRIM Board votes with comfort of due diligence
  • 11. Massachusetts PRIM Current Targeted Investments
    • $160 million committed
    • $114 million deployed to date
    • Real Estate
    • New Boston-USA, Canyon Johnson, Intercontinental
    • Private Equity
    • Flagship Ventures, Castile Ventures
    • Fixed Income
    • Access Capital, CRA Fund Advisors
    • CRA Fund Advisors approved through 2006 RFP
  • 12. Canyon-Johnson investment in Charlestown, MA
  • 13. Project website
    • For more information and case studies:
    • http://urban.ouce.ox.ac.uk