community investing for pension funds presentation to canadian pension funds on community...
TRANSCRIPT
COMMUNITY INVESTING FOR PENSION FUNDS
Presentation to Canadian Pension Funds on Community
Investing/ETIsCoro Strandberg, Strandberg Consulting
2006Sponsored by: Canadian CED Network
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Overview
Context and Background Definition and Rationale US and Canadian Experience Lessons Learned Future Opportunities
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Context and Background
Capital gap Canadian Community Economic
Development Network (CCEDNet) project
Funded by WD and Vancity
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Community Investment Defined
Market grade investments Collateral social returns:
Jobs Affordable housing Community economic restructuring Urban revitalization Community services Environmental regeneration Social economy enterprises
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Under-Served Capital Markets
Exist because: Information gaps Capital provider preferences for other
sectors Few Canadian precedents
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Rationale for CI Emerging asset class Enhances long term assets
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US ETI Experience Public:
CalPERS New York State Pension Funds New York City Pension Funds
Church: United Methodist Church General Board of
Pensions and Health Benefits The Church Pension Group (Episcopal Church of
America) Private:
AFL-CIO Housing Investment Trust
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Current Research Mapping US public sector pension funds
to assess urban revitalization interest Policies and programs:
CalPERS CalSTERS NY State Commons NY City Retirement
6 considering urban revitalization 10 inner-city investments part of asset
allocation - no stated goal
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Legal Framework ERISA governs private pension
funds May pursue ETIs
Standard prudent investment guidelines Appropriate risk/return characteristics
Many states cite ERISA standards
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CalPERS $200 B in assets 2005 ETI Policy (updated): collateral intent to
stimulate economy: job creation, development and savings, business creation, increases to or improved affordable housing stock and improved infrastructure
Competitive risk-adjusted rates of return Target: 2% of fund assets Provides collateral benefits to targeted
geographic areas, groups of people or sectors of the economy while providing pension funds with prudent investments
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CalPERS cont’d California Emerging Market Investment
Program: Investment opportunities in traditionally
underserved markets in California while providing competitive risk-adjusted rates of return
Investments included with similar investments in assets classes (fixed income, private equity and real estate)
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CalPERS Case Study Pacific Community Ventures Investment
Partners: Invest in businesses such as Ever Green
Lodge: San Francisco lodging business Goal of helping at-risk Bay Area youth/low income
to develop stable careers and lives Employs 10 Bay Area youth and 60 low income
adults a year in seasonal and year-round positions And Timbuk2 Designs
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New York City Pension Funds
5 pension funds; $85 B 1982 program ETI assets: $700 M Affordable housing, community
facilities, small business Average 5 year returns: 8% Use intermediaries Government-guarantees
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General Board of Pensions and Health Benefits of the United Methodist Church
$13.5 B 1990 program; 10% cap ETI assets: $600 M
Affordable Housing 85% Community Facilities Lending 10% Other 5%
Community Reinvestment Fund Average 5-year returns: 8.4% Use intermediaries
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The Church Pension Group(Episcopal Church of America)
$7.5 B in assets 2000 program ETI assets: $152 M
$117 M in urban development equity real estate
$20 M in low income housing mortgages $15 M in international micro-finance
Returns comparable to asset class on a risk-adjusted basis
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Analysis of US ETI Experience 5 – 24 years Under-invested markets
affordable housing community facilities small business international micro-finance
Allocation caps Comparable returns Intermediaries
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US ETI Product Example
Community Reinvestment Act Qualified Investment Fund
Supports community and economic development 5.04% 5-year returns (12/31/05); 5.60% since
inception (8/30/99) $660 M, 300 institutional shareholders (Dec. 05) Portfolio:
Affordable Multi-Family Housing 54.6% Affordable Home Ownership 35.1 Enterprise Development 7.4 Economic Development 1.9 Affordable Health Care 1.0
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US Community Development Lenders (Intermediaries) 800 – 1,000; $8 B Serve under-served Rural, urban and reservation-based Risk management:
adequate capital loan loss reserve close monitoring technical assistance
.7% charge-off ratio (Banks .97%)
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Failed ETIs High profile losses in 80s Standard investment rules were
not practiced Social benefits drove investments;
market rates were secondary
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Canadian Experience Caisse de Depot Concert Properties Quebec
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Caisse de Depot New Act states the Caisse de
Depot mission: “To achieve an optimal return on
capital …while at the same time contributing
to Quebec’s economic development”
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Concert Properties
Over $800 M in assets Established in 1989 100% of fund in ETI projects:
Assured rental housing Mandate to employ unionized trades
people on job sites
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Quebec Chantier – social economy enterprises
($58.5M) Fonds de Solidarite de la FTQ $12.0 M Fondaction de la CSN 8.0 M Federal Government 28.5M Provincial Government 10.0M
6% return to pension funds after 15 years (flexible if prime goes up)
1 rep. each on a 5 person board Enterprises are charged a fee to create
guarantee fund
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Analysis Limited experience in Canada
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Canadian ETI Product Example
CMHC: Canada Mortgage Bonds (CMB) Program (March 2005)
Mortgage loan financing for social housing Principal guaranteed Most current bond, maturing 03/11, is
yielding 12 bp over GOC; range from 8 – 15 bp
33% of investors are Cdn. pension and fund managers/advisors
$78.05 B in pool
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Canadian CI Sector
Over 150 organizations $546 M; $387.5 M in Quebec Includes:
Small loans to micro-businesses Risk capital to SMEs Loans and equity for non-profits, co-ops and
businesses meeting community needs Aboriginal Capital Corporations Mortgages or construction loans for low income
housing No performance data
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Canadian Experience: Case Study
Ecotrust financed tuna fishing vessel $175,000 loan for 60 months Rate: Prime (5.25%) + 4% Difficulty qualifying for traditional credit:
high risk industry inconsistent historical cash flow
Benefits: increased jobs sustainable fishery
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Lessons Learned Trustee board level champions External feasibility study Due diligence Effective partnerships
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Next Steps Conduct research Incorporate practices into SIPP Risk mitigation Benchmarks Communicate