Public pension fund investments are seeding urban renewal in cities across the United States, according to researchers for the Pension Funds and Urban Revitalization Project at the Labor and Worklife Program at Harvard Law School. Studying the $193.3 billion California Public Employees' Retirement System, Sacramento, and the $91.3 billion New York City Employees' Retirement System, researchers Tessa Hebb and Lisa A. Hagerman concluded investment in underserved capital markets can help achieve "appropriate" risk-adjusted rates of return while simultaneously promoting economic growth in inner city areas.
"When the focus is on returns in urban revitalization investment, pension funds concentrate on the best deals available rather than on social outcomes," said Ms. Hebb in a news release. For example, CalPERS' targeted real estate program, CURE, has had an internal rate of return of 22.2% since inception (1997). "It can be argued that such targeting allowed CalPERS to enter the California urban real estate market before it became ‘hot,' resulting in both good returns to the fund and significant urban revitalization," the news release said.
The Harvard research comes at a time when researchers are considering more ways pension fund investment can boost urban infrastructure in the wake of Hurricanes Rita and Katrina, according to the release.