public pension funds and urban revitalization december 6 th 2006 boston, ma dr. tessa hebb, senior...
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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