Public Pension Funds and Urban Revitalization

December 6th 2006Boston, MA

Dr. Tessa Hebb, Senior Research Associate

Lisa Hagerman, Research Fellow

Labor & Worklife Program, Harvard Law SchoolOxford University Centre for the Environment

Sponsored by the Rockefeller and Ford Foundations

Presentation Overview

Terminology

Best practice findings from pension fund case studies

NYCERS fixed income

CalPERS private equity and real estate

MassPRIM investment selection process

Urban Investment Strategies

Targeted investment in economic development

Types of targeted investment Private equity Real estate Fixed income Infrastructure Credit enhancement

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

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

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

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)

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

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

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

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

Canyon-Johnson investment in Charlestown, MA

Project website

For more information and case studies:

http://urban.ouce.ox.ac.uk