Public Pension Funds and Urban Revitalization December 6 th 2006 Boston, MA Dr. 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  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

Canyon-Johnson investment in Charlestown, MA

Project website  For more information and case studies: