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Public Pension Funds and Urban Revitalization

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 .

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Public Pension Funds and Urban Revitalization

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  1. Public Pension Funds and Urban Revitalization June 5th 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. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. CalPERS’ Targeted Investments • Geographic targeting: underserved capital markets • Real estate – CURE Program ($3.4 b. committed) • Private equity – California Initiative ($500 m. committed)

  9. 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

  10. Targeted Investment in Urban Revitalization – Hollywood CA Woolworth Building: Hollywood CA CIM Group

  11. 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.

  12. CalPERS’: California InitiativePacific Community Ventures: Planet Organics – San Francisco

  13. 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

  14. 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

  15. 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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