Transcript South Florida Smart Growth Fund

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
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
Urban Investment Strategies
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Types
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of targeted investment
Private equity
Real estate
Fixed income
Infrastructure
Credit enhancement
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Success if measured in risk adjusted rates of return
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Pension funds are not market makers
New York City - NYCERS
Economically Targeted
Investment (ETI) Policy
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Returns must be comparable to non-targeted investment
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Guided by strategic asset allocation policy
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2% across assets to date majority in fixed income
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August 2005 ETI policy target allocation:
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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
Public Private Partnership
$42.7b
NYCERS
2% ETIs
NYCERS commits
to buy loan at
lock-in
interest rate
100% SONYMA
Guarantee - P&I
since 1978 total
claims only $1.7 m.
NYCERS no losses
CPC/JPMorgan Chase
makes
construction
loan as permanent
financing in place
Partners
have track
record know
neighborhood
& developers
Capital
deployed
11,000
housing
units
City - tax
abatements
agencies low rate
second
mortgages
NYCERS
Fixed Income
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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%
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Investments in national funds leverage fund
(i.e. HIT $500m. in NYC ) to make direct investments
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Investments programmatic - deflect political interference
New York State - NYSLRS
Common Retirement Fund
Fixed Income

Affordable Housing Permanent Loans (1991)
Over 6,000 units
Invested $205m.
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3,148 in works
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
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Total fixed income portfolio 5 year return 9.28%
Common Retirement Fund
Private Equity & Real Estate
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In-state Private Equity Program
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Response to Jobs 2000 Act
$364m. committed / over $250m. legislated target
12 private equity managers
Real Estate: $25m. mixed use complex
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NYC - 360 rental apartments - first phase
80% market-rate
20% low-income housing
Commercial - community center, supermarket
CalPERS’ Targeted Investments
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Geographic targeting: underserved capital
markets
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Real estate
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Private equity – California Initiative
($500 m.)
– CURE Program
($1.6 b.)
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
Targeted Investment in Urban
Revitalization – Hollywood CA
Woolworth Building: Hollywood CA
CIM Group
CalPERS’ Urban Real Estate
Time Warner Center New York NY
Time Warner Center
CUIP
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.
Impacts
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Too early for financial results
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$230m invested in 56 companies
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37 in California
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All
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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%
CalPERS’: California Initiative
Pacific Community Ventures:
Planet Organics – San Francisco
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
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Best Practice in Pension Fund
Urban Investment
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Success is measured first in risk-adjusted
rates of return
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Geographic rather than social targeting
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Set broad targets
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Allow top-quartile vehicles to do their job
Conclusion
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Targeted investment can generate risk-adjusted rates of
return and healthy vibrant communities
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Pension funds are not excessive risk-takers or market
makers
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Best practice in targeted investing is important for
success
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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?
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For more information visit: http://urban.ouce.ox.ac.uk