Transcript COMMUNITY INVESTING FOR PENSION FUNDS

COMMUNITY INVESTING
FOR PENSION FUNDS
Presentation to Canadian Pension
Funds on Community Investing/ETIs
Coro Strandberg, Strandberg Consulting
2006
Sponsored by: Canadian CED Network
Overview
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Context and Background
Definition and Rationale
US and Canadian Experience
Lessons Learned
Future Opportunities
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Context and Background
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Capital gap
Canadian Community Economic Development
Network (CCEDNet) project
Funded by WD and Vancity
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Community Investment Defined
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Market grade investments
Collateral social returns:
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Jobs
Affordable housing
Community economic restructuring
Urban revitalization
Community services
Environmental regeneration
Social economy enterprises
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Under-Served Capital Markets
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Exist because:
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Information gaps
Capital provider preferences for other sectors
Few Canadian precedents
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Rationale for CI
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Emerging asset class
Enhances long term assets
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US ETI Experience
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Public:
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Church:
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CalPERS
New York State Pension Funds
New York City Pension Funds
United Methodist Church General Board of
Pensions and Health Benefits
The Church Pension Group (Episcopal Church of
America)
Private:
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AFL-CIO Housing Investment Trust
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Current Research
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Mapping US public sector pension funds to
assess urban revitalization interest
Policies and programs:
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CalPERS
CalSTERS
NY State Commons
NY City Retirement
6 considering urban revitalization
10 inner-city investments part of asset
allocation - no stated goal
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Legal Framework
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ERISA governs private pension funds
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May pursue ETIs
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Standard prudent investment guidelines
Appropriate risk/return characteristics
Many states cite ERISA standards
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CalPERS
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$200 B in assets
2005 ETI Policy (updated): collateral intent to
stimulate economy: job creation, development and
savings, business creation, increases to or improved
affordable housing stock and improved infrastructure
Competitive risk-adjusted rates of return
Target: 2% of fund assets
Provides collateral benefits to targeted geographic
areas, groups of people or sectors of the economy
while providing pension funds with prudent
investments
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CalPERS cont’d
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California Emerging Market Investment
Program:
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Investment opportunities in traditionally
underserved markets in California while providing
competitive risk-adjusted rates of return
Investments included with similar investments in
assets classes (fixed income, private equity and
real estate)
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CalPERS Case Study
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Pacific Community Ventures Investment
Partners:
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Invest in businesses such as Ever Green Lodge:
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San Francisco lodging business
Goal of helping at-risk Bay Area youth/low income to
develop stable careers and lives
Employs 10 Bay Area youth and 60 low income adults a
year in seasonal and year-round positions
And Timbuk2 Designs
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New York City Pension Funds
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5 pension funds; $85 B
1982 program
ETI assets: $700 M
Affordable housing, community facilities,
small business
Average 5 year returns: 8%
Use intermediaries
Government-guarantees
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General Board of Pensions and Health
Benefits of the United Methodist Church
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$13.5 B
1990 program; 10% cap
ETI assets: $600 M
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Affordable Housing
85%
Community Facilities Lending
10%
Other
5%
 Community Reinvestment Fund
Average 5-year returns: 8.4%
Use intermediaries
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The Church Pension Group
(Episcopal Church of America)
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$7.5 B in assets
2000 program
ETI assets: $152 M
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$117 M in urban development equity real estate
$20 M in low income housing mortgages
$15 M in international micro-finance
Returns comparable to asset class on a riskadjusted basis
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Analysis of US ETI Experience
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5 – 24 years
Under-invested markets
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affordable housing
community facilities
small business
international micro-finance
Allocation caps
Comparable returns
Intermediaries
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US ETI Product Example
Community Reinvestment Act Qualified
Investment Fund
 Supports community and economic development
 5.04% 5-year returns (12/31/05); 5.60% since
inception (8/30/99)
 $660 M, 300 institutional shareholders (Dec. 05)
 Portfolio:
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Affordable Multi-Family Housing
Affordable Home Ownership
Enterprise Development
Economic Development
Affordable Health Care
54.6%
35.1
7.4
1.9
1.0
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US Community Development
Lenders (Intermediaries)
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800 – 1,000; $8 B
Serve under-served
Rural, urban and reservation-based
Risk management:
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adequate capital
loan loss reserve
close monitoring
technical assistance
.7% charge-off ratio (Banks .97%)
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Failed ETIs
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High profile losses in 80s
Standard investment rules were not
practiced
Social benefits drove investments;
market rates were secondary
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Canadian Experience
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Caisse de Depot
Concert Properties
Quebec
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Caisse de Depot
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New Act states the Caisse de Depot
mission:
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“To achieve an optimal return on capital
…while at the same time contributing to
Quebec’s economic development”
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Concert Properties
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Over $800 M in assets
Established in 1989
100% of fund in ETI projects:
 Assured rental housing
 Mandate to employ unionized trades
people on job sites
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Quebec
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Chantier – social economy enterprises
($58.5M)
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Fonds de Solidarite de la FTQ $12.0 M
Fondaction de la CSN
8.0 M
Federal Government
28.5M
Provincial Government
10.0M
6% return to pension funds after 15 years
(flexible if prime goes up)
1 rep. each on a 5 person board
Enterprises are charged a fee to create
guarantee fund
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Analysis
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Limited experience in Canada
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Canadian ETI Product Example
CMHC: Canada Mortgage Bonds (CMB)
Program (March 2005)
 Mortgage loan financing for social housing
 Principal guaranteed
 Most current bond, maturing 03/11, is
yielding 12 bp over GOC; range from 8 – 15
bp
 33% of investors are Cdn. pension and fund
managers/advisors
 $78.05 B in pool
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Canadian CI Sector
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Over 150 organizations
$546 M; $387.5 M in Quebec
Includes:
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Small loans to micro-businesses
Risk capital to SMEs
Loans and equity for non-profits, co-ops and businesses
meeting community needs
Aboriginal Capital Corporations
Mortgages or construction loans for low income housing
No performance data
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Canadian Experience:
Case Study
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Ecotrust financed tuna fishing vessel
$175,000 loan for 60 months
Rate: Prime (5.25%) + 4%
Difficulty qualifying for traditional credit:
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high risk industry
inconsistent historical cash flow
Benefits:
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increased jobs
sustainable fishery
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Lessons Learned
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Trustee board level champions
External feasibility study
Due diligence
Effective partnerships
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Next Steps
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Conduct research
Incorporate practices into SIPP
Risk mitigation
Benchmarks
Communicate
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