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COMMUNITY INVESTING FOR PENSION FUNDS Presentation to Canadian Pension Funds on Community Investing/ETIs Coro Strandberg, Strandberg Consulting 2006 Sponsored.

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Presentation on theme: "COMMUNITY INVESTING FOR PENSION FUNDS Presentation to Canadian Pension Funds on Community Investing/ETIs Coro Strandberg, Strandberg Consulting 2006 Sponsored."— Presentation transcript:

1 COMMUNITY INVESTING FOR PENSION FUNDS Presentation to Canadian Pension Funds on Community Investing/ETIs Coro Strandberg, Strandberg Consulting 2006 Sponsored by: Canadian CED Network

2 2 Overview Context and Background Definition and Rationale US and Canadian Experience Lessons Learned Future Opportunities

3 3 Context and Background Capital gap Canadian Community Economic Development Network (CCEDNet) project Funded by WD and Vancity

4 4 Community Investment Defined Market grade investments Collateral social returns: Jobs Affordable housing Community economic restructuring Urban revitalization Community services Environmental regeneration Social economy enterprises

5 5 Under-Served Capital Markets Exist because: Information gaps Capital provider preferences for other sectors Few Canadian precedents

6 6 Rationale for CI Emerging asset class Enhances long term assets

7 7 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

8 8 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

9 9 Legal Framework ERISA governs private pension funds May pursue ETIs Standard prudent investment guidelines Appropriate risk/return characteristics Many states cite ERISA standards

10 10 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

11 11 CalPERS contd 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)

12 12 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

13 13 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

14 14 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

15 15 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

16 16 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

17 17 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

18 18 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%)

19 19 Failed ETIs High profile losses in 80s Standard investment rules were not practiced Social benefits drove investments; market rates were secondary

20 20 Canadian Experience Caisse de Depot Concert Properties Quebec

21 21 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 Quebecs economic development

22 22 Concert Properties Over $800 M in assets Established in % of fund in ETI projects: Assured rental housing Mandate to employ unionized trades people on job sites

23 23 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

24 24 Analysis Limited experience in Canada

25 25 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

26 26 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

27 27 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

28 28 Lessons Learned Trustee board level champions External feasibility study Due diligence Effective partnerships

29 29 Next Steps Conduct research Incorporate practices into SIPP Risk mitigation Benchmarks Communicate

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