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

COMMUNITY INVESTING FOR PENSION FUNDS

Presentation to Canadian Pension Funds on Community

Investing/ETIsCoro Strandberg, Strandberg Consulting

2006Sponsored by: Canadian CED Network

2

Overview

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

3

Context and Background

Capital gap Canadian Community Economic

Development Network (CCEDNet) project

Funded by WD and Vancity

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

Under-Served Capital Markets

Exist because: Information gaps Capital provider preferences for other

sectors Few Canadian precedents

6

Rationale for CI Emerging asset class Enhances long term assets

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

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

Legal Framework ERISA governs private pension

funds May pursue ETIs

Standard prudent investment guidelines Appropriate risk/return characteristics

Many states cite ERISA standards

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

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)

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

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

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

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

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

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

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

Failed ETIs High profile losses in 80s Standard investment rules were

not practiced Social benefits drove investments;

market rates were secondary

20

Canadian Experience Caisse de Depot Concert Properties Quebec

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 Quebec’s economic development”

22

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

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

Analysis Limited experience in Canada

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

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

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

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

29

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