CAMBRIDGE, Mass. Public pension fund executives are pushing ahead with investments aimed at revitalizing urban areas in their backyards despite the political risks that come with pursuing non-financial goals. Sponsors of a recent Harvard Law School/Oxford University conference on Pension Funds: Investing to Build Strong and Sustainable Communities, said their data suggest growing momentum for such economically targeted investing.
Public pension funds allocations to ETIs doubled to $12 billion over the three years through June 2007, noted Lisa A. Hagerman, a research fellow with Harvard Law Schools Pension Funds & Urban Revitalization Initiative.
A number of heavyweight public funds including the $245.4 billion California Public Employees Retirement System and the $169.2 billion California State Teachers Retirement System, both in Sacramento; the $110 billion New York City Employees Retirement Systems; and the $50.4 billion Massachusetts Pension Reserves Investment Management Board, Boston have been at the forefront of that growth.
The number of money managers pursuing ETI mandates also has been growing rapidly. There now are 15 to 20 managers capable of responding to an ETI-focused request for proposal, up from a handful only five years ago, according to the managing director of one ETI manager, who declined to be named.
The conference explored such topics as efforts to better quantify the social and environmental benefits of targeted investments, but only because a growing number of investors have managed to clear the biggest hurdle: garnering ETI returns that compare favorably with non-targeted investments.
For example, New York City Comptroller William C. Thompson Jr., in a keynote address to the June 10 conference at Harvard Law School, said annualized returns on investments by the NYC funds to help transform communities were 6.5% annualized over the past three years, better than the systems overall fixed-income return of 5.7%.
Other pension fund executives reported similar successes. Priya Sara Mathur, chairman of the health benefits committee of CalPERS board of the trustees, said CalPERS $475 million in socially responsible private equity investments have averaged annualized returns of 18% over the past seven years. Laurie Weir, a portfolio manager for CalPERS Urban Investment Program, said CUREs $2.5 billion portfolio has delivered annualized returns of 33% a year over the past five years.