Public Pension Funds and Urban Revitalization

1
Public Pension Funds and Urban Revitalization

• October 25, 2005
• Hartford, Connecticut
• 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

• Best practice findings from three pension fund
  case studies
• NY City State fixed income focus
• CalPERS private equity and real estate
• 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
New York City - NYCERSEconomically Targeted
Investment (ETI) Policy

• Returns must be comparable to non-targeted
  investment
• Guided by strategic asset allocation policy
• 2 across assets to date majority in fixed
  income
• August 2005 ETI policy target allocation
• 6 of fixed Income portfolio (30 of total)
• 2 of private equity portfolio (5 of total)
• 2 of real estate portfolio (6 of total)
• Geographic target (5 boroughs) and to fill
  capital gap

5
Public Private Partnership
42.7b NYCERS 2 ETIs
Capital deployed 11,000 housing units
NYCERS commits to buy loan at lock-in interest
rate
CPC/JPMorgan Chase makes construction loan as
permanent financing in place
100 SONYMA Guarantee - PI since 1978 total
claims only 1.7 m. NYCERS no losses
Partners have track record know neighborhood
developers
City - tax abatements agencies - low rate second
mortgages
6
NYCERS Fixed Income

• PPAR Program (CPC/J.P. Morgan Chase CDC)
• 11,000 apartments 3,000 in works
• 208 m. invested 123.m committed
• 10 year net return forward-rate commitments
  9.33
• 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

7
New York State - NYSLRSCommon Retirement Fund
Fixed Income

• Affordable Housing Permanent Loans (1991)
• Over 6,000 units 3,148 in works
• Invested 205m. Committed 400m. to CPC
  Program
• Mortgage Pass-Through Program (1981)
• Purchased 6.8 b. in NY state mortgages
• Homes to over 60,000 residents
• Backed by Fannie Mae and Freddie Mac
• Total fixed income portfolio 5 year return 9.28

8
Common Retirement Fund Private Equity Real
Estate

• In-state Private Equity Program
• Response to Jobs 2000 Act
• 364m. committed / over 250m. legislated target
• 12 private equity managers
• Real Estate 25m. mixed use complex
• NYC - 360 rental apartments - first phase
• 80 market-rate 20 low-income housing
• Commercial - community center, supermarket

9
CalPERS Targeted Investments

• Geographic targeting underserved capital markets
  
• Real estate CURE Program
• (1.6 b.)
• Private equity California Initiative
• (500 m.)

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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

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Targeted Investment in Urban Revitalization
Hollywood CA
Woolworth Building Hollywood CA
CIM Group
12
CalPERS Urban Real EstateTime Warner Center
New York NY
Time Warner Center CUIP
13
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.

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Impacts

• Too early for financial results
• 230m invested in 56 companies
• 37 in California
• All investments met one or more social objective
  
• underserved capital markets 63 of total
  investment
• women and/or minority owned businesses 57
• employed low/moderate income workforce 36

15
CalPERS California InitiativePacific Community
Ventures
Planet Organics San Francisco
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Steps in Targeting Investment

• Board level champion
• Board direction lets look at..
• Staff get outside expert study
• Boards set broad targets
• Select appropriate asset class and amount
• Issue RFP
• Hire top-quartile manager

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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

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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 nations
  largest cities, what are the market-rate
  opportunities in urban revitalization in the
  smaller US cities?
• For more information visit http//urban.ouce.ox.a
  c.uk