1. Public Pension Funds and Urban Revitalization June 7 th 2006 Baltimore, MD Leadership Forum Tessa Hebb, Senior Research Associate Lisa Hagerman, Research Fellow Labor & Worklife Program, Harvard Law School Sponsored by the Rockefeller and Ford Foundations

2. Presentation Overview  Best practice findings from four pension fund case studies  NY City & State: fixed income focus  CalPERS: private equity and real estate  MassPRIM ETI selection process  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. NYCERS ETI 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

5. NYCERS Fixed Income Investments  Returns comparable to traditional investments  10 year net return forward-rate commitments: 9.33%  Outperformed 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

6. New York State (CRF) Fixed Income  Affordable Housing Permanent Loan Program (1991) over 6,000 units 3,138 in pipeline  Mortgage Pass-Through Program (1981) Purchased $6.8 b. in NY state mortgages  Home ownership for over 60,000 residents

7. CRF Private Equity & Real Estate  In-state Private Equity Program  Response to Jobs 2000 Act  $364m. committed / over $250m. target  Real Estate: $25m. mixed use complex  NYC - 360 rental apartments  80% market-rate 20% low-income housing  Commercial - Whole Foods, YMCA

8. Massachusetts PRIM ETIs  1983 legislative mandate to target in-state  2003 ETI Policy created  $135m. committed $80.8m. deployed  Canyon Johnson,New Boston, Intercontinental Access Capital, Flagship, Castile Ventures  2006 ETI RFP

9. CalPERS’ Targeted Investments  Geographic targeting: underserved capital markets  Real estate – CURE Program ($3.4 b. committed)  Private equity – California Initiative ($500 m. committed)

10. 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

11. Targeted Investment in Urban Revitalization – Hollywood CA Woolworth Building: Hollywood CA CIM Group

12. 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.

13. CalPERS’: California Initiative Pacific Community Ventures: Planet Organics – San Francisco

14. Impacts  16.3% annual ROI in the last year (Sept. 2005)  Leveraged $725 m. from other investors.  Invested in 83 companies  51 companies located in underserved capital markets  Reported 2,000 jobs created (June 2005)

15. 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

16. 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

17. 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 nation’s largest cities, what are the market-rate opportunities in urban revitalization in the smaller US cities?  For more information visit: http://urban.ouce.ox.ac.uk