NEBF model shows economic effect on community, workers

The National Electrical Benefit Fund in Washington has modeled its real estate program to show quantifiable impacts that include strengthening the pension fund itself. It's an approach likely to be copied as more pension funds and managers address ESG demands.

The $17 billion NEBF, the third largest Taft-Hartley pension plan in the U.S., is jointly administered by the International Brotherhood of Electrical Workers and the National Electrical Contractors Association. A second defined contribution plan, the $12 billion National Electrical Annuity Plan, covers utility and transmission line workers.

The idea to measure and quantify the plans' collateral economic impact was sparked by several of their real asset managers, which have been collecting economic impact data on their own investments for years.

Pamela Silberman, principal of PSS Advisory Services LLC, Bethesda, Md., served as project manager for the NEBF econometric modeling project. To her, "it definitely speaks to the role that pension plans are playing in communities. I think this is a great tool to answer that." Ms. Silberman, who works with investment managers and asset owners analyzing alternative investments through an ESG lens, said, "I talk to my clients about ESG, but I do hear people struggle with the 'S' piece of it."

NEBF and NEAP turned to Pinnacle Economics to conduct an economic impact analysis based on input-output models, mathematical representations of the economy and how different parts are linked to one another, using IMPLAN software originally developed by the U.S. Forest Service. In a nutshell, the IMPLAN model traces how spending associated with a project or program circulates through an economy.

The model took data from the funds' six real estate investment managers, with a collective $84 billion in open-end funds, closed-end funds and separate accounts across a variety of core, core-plus and value-add strategies, and analyzed NEBF and NEAP shares. The six managers are BentallGreenOak, ASB Real Estate Investments, National Real Estate Advisors LLC, Ullico Inc., AFL-CIO Building Investment Trust and AFL-CIO Housing Investment Trust.

NEBF's real estate allocation target is 15% with a range up to 20%, while NEAP's target is 10% with a range up to 15% across five target-date funds.

Analyzing more than 835 construction and tenant improvement projects managed by the firms between 2012 and 2020 across 33 states, Pinnacle Economics found that the total impacts of the NEBF and NEAP real estate investments created $14.4 billion in economic activity for communities, $7.1 billion in labor income for workers and employers, 84,188 jobs and 162 million man-hours.

In direct hard cost investments, NEBF/NEAP real estate investments generated $3.9 billion in construction income, 34,528 construction jobs and 69.3 million hours of work and $775.9 million paid in pension benefits to construction trade workers on the projects.

As the NEBF/NEAP report notes, the investments earn good returns and provide retirement security for current plan participants, but "also play a vital role in sustaining the plans' economic security," by driving increased demand for real estate, creating opportunities for National Electrical Contractors Association and IBEW members, and "growing employer contributions into NEBF and NEAP."

While the analysis didn't provide investment returns on those projects, it was a validation of NEBF and NEAP fund trustees' belief in sustainable investment programs that contribute to economic growth and keep pension funds healthy.

To NEBF trustee and IBEW International President Lonnie R. Stephenson, the report "speaks to something foundational to the labor movement" where workers use their collective power to improve lives, but there is another message. "Financial capital is also its own power," he said.

"This report proves how much deeper we can go. We can meet our fiduciary obligations to the future and make prudent investment decisions that empower working families today, again and again, through good jobs and community improvements that benefit us all."

NEBF trustee and National Electrical Contractors Association CEO David Long agreed. "The effectiveness of these plans demonstrates how our industry grows the economy beyond our work on the job site. These findings clearly show NECA and the IBEW are making positive impacts across America. We are proud to be a part of these investment funds."

Proving impact is not new for NEBF real estate manager BentallGreenOak, whose Multi-Employer Property Trust, an open-end core diversified private equity fund with $10 billion in assets, started doing its own impact study in 2005. "Our investors wanted to know what impact we were having on our communities," said portfolio management principal Tim Bolla in Bethesda, Md.

"You are definitely seeing more demand for that kind of information. As people focus on ESG, they are going to try to figure out their impact. Investors want to see returns but they also want to see you are contributing to the world around you," Mr. Bolla said.

Having the data also helps the fund qualify as an impact fund. "As the whole universe is moving toward more rigorous statements, I think you are going to see more people doing this," he said.

Proving the impact in terms of union jobs was not new for Ullico, either. Its 'J for Jobs' separate account with $3.5 billion from union pension fund investors lends to real estate developers and property owners while requiring union labor on all construction.

The financial crisis inspired Ullico to "add more science" to quantify the economic impact of its lending, and helped the fund get back into the marketplace, said Joseph R. Linehan, president of Ullico subsidiaries Ullico Investment Advisor Inc. and Ullico Investment Co LLC.

"Every time we close a deal, we present the transaction's details to an independent economist to quantify the number of jobs, state and local taxes and more."

National Real Estate Advisors, Washington, a wholly owned subsidiary of NEBF with $3.5 billion in assets under management, has tracked its own economic data for the past two decades. "Our first concern is making money. It so happens that our investment strategy produces collateral benefits," said Jeff Kanne, president and CEO. With a build-to-core strategy that often finds them the first developers in an area, "it can't hurt as a calling card for us when we go to a new city. We want everyone to say those guys are good actors. We want them to come back," he said.

At ASB Real Estate Investments in Bethesda, Md., with $7 billion under management, managing director James Darcey said his firm's goal of making buildings that last "really led to the notion of 'what is this investment policy doing for our partners?'"

"In today's world it goes beyond (financial impact) when you talk about ESG. It really is part of a growing story that aligns us with our investor base and tenants. I think all of our peers are heading that way," Mr. Darcey said.