Alexander, A.L. (2006) Goldman Sachs Bullish on the EDM. Journal of ... http://www.frbsf.org/publications/community/review/062007/index.html. Clark, C., et al.
Labor and Worklife Program Harvard Law School, and Oxford University Centre for the Environment NCPERS: BEST PRACTICE PENSION FUND INVESTMENT IN AMERICA’S CITIES, July 26-27th 2007 Co-ordinators: Professor Gordon L Clark and Dr. Tessa Hebb
Materials and Preparation for the Program We have provided a set of readings for the program which set the scene and cover important topics including a case study of “best-practice” that will be essential to discussion in the morning sessions. It is vital that participants come to Harvard having read this material: Required Readings Session 1 Freshfields, Bruckhaus, Derringer (2005) A legal framework for the integration of environmental, social and governance issues into institutional investment, Report for UNEP Finance Initiative, October pp. 6-13, 102-116, 149-151 Hagerman, Lisa.A, Gordon L. Clark, and Tessa Hebb (2006) Massachusetts Pension Reserves Investment Management Board: Urban Investing through a Transparent Selection Process. Working Paper 06-16. Oxford: Oxford University Centre for the Environment http://www.ouce.ox.ac.uk/research/transformations/wpapers/wpg06-16.php pp 11-26
Munnell A. H. and Sunden, A. (2004) Social Investing: Pension Plans Should Just Say "No" Prepared for Conference on Costs and Benefits: “Socially Responsible ” Investing and Pension Funds, The American Enterprise Institute, Washington, DC, June 7, 2004 pp. 21-33 Nofsinger, J.R. (1998) Why targeted investing does not make sense! Financial Management, 27 (3), 87-96. Session 2 CalPERS and Pacific Community Ventures (2007) California Initiative Impacting California's Underserved Communities: Taking a Second Look. February, http://www.calpers.ca.gov/eip-docs/about/board-calagenda/agendas/invest/200702/item05b-02.pdf pp. 1-5 Hebb, Tessa (2005) Pension Funds and Urban Revitalization California Case Study A: Private Equity CalPERS' California Initiative. Working Paper 05-15. Oxford: Oxford University Centre for the Environment pp 4-13. 1
Hebb, Tessa. (2005) Pension Funds and Urban Revitalization California Case Study B: Real Estate CalPERS' California Urban Real Estate Initiative. Working Paper 05-16. Oxford: Oxford University Centre for the Environment pp 4-10 Suggested Readings Clark, Gordon L. (2004) ‘Pension fund governance: expertise and organizational form’, Journal of Pension Economics and Finance 3:233-53. Harrigan, S., (2003), Economically targeted investments: Doing well and doing good, in Carmichael, Isla, & Quarter, Jack (Eds.), Money on the line: Workers’ Capital in Canada, (Ottawa: Centre for Policy Alternatives), pp. 237-252.
Session 1. Principles: Targeted Investing (8:30 to 9:30am) In this session we begin with an examination of the issues involved in pension fund investment in emerging domestic markets or underserved capital markets. As fiduciaries the first questions that arise are the legal ramifications of targeted pension fund investment aimed at economic and community development. In the past much has been made of the fiduciary limits that must be placed on targeted investment in the pension plan portfolio. What are the legitimate claims that can be made of this type of investment? If a decision is taken to invest in this area what are the processes and considerations that must be taken into account in investment selection? 1. Introduction • Review of targeted investing • Its critics, past and present • Three generations of targeted investing strategies 2. Fiduciary duty of trustees • Legal ramifications of these policies • ERISA Interpretive Bulletin and case law • Freshfields report 3. Importance of asset allocation • Portfolio diversification • Long term time horizons • Correlation with other asset classes 4. Principles of fund governance • Systematic decision-making • Assessment, evaluation, and advice • Integration with strategic investment policy
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5. Success (and less success) • Risk and return • Evaluation and learning-by-doing • Enhancing decision-making 6. Conclusions • Working from principles • Knowing the limits of the investment process • Enhancing the reputation of the fund.
Session 2. Best Practice: Targeted Investing (9:45-10:45am) We build on the earlier session by delving into greater detail on current best practice in pension fund targeted investment in underserved capital markets and emerging domestic markets. Assuming a pension fund concludes that targeting investment for economic and community development is legitimate and important, what can a pension fund do to maximize the chance that its investment and appropriate targeting goals are achieved? First we examine the research on how pension funds have undertaken these ‘third generation’ targeted investments in economic and community development. We look at the role of the board level champion in helping to establish interest in such investment programs. We also examine the roles of other key actors in establishing pension fund targeted investing policies and programs. These include the roles played staff, board consultants, and external consultants through out the process. ________________________________________________________________________ 1. Definitions • Targeting • Underserved capital markets • Emerging domestic markets • Urban revitalization 2. Early history of targeted investments • 1980s subsidy driven model • Politically motivated • 2000 shift to market-driven models 3. Current examples of new market-driven approach • CalPERS CURE Program • CalPERS California Initiative • NYCERS ETI Program 3
• New York Common • MassPRIM Targeted Investing Program • CalSTRS Proactive Portfolio 4. Developing a policy or program (CalPERS, CalSTRS, and MassPRIM policies provided with course material) • Board-level champion • Board directives to staff • External expert’s study • Board sets broad geographic targets • Select appropriate asset class and amount • Issue RFP • Hire top-quartile manager 5. Selecting the asset class and benchmarks • Fixed income • Real estate (including workforce housing) • Private equity • Infrastructure • Credit enhancement 6. Best practice in targeted investing • Success measured by risk-adjusted rates of return • Geographic rather than social targeting • Set broad targets • Allow top-quartile vehicles to do their job • Investment vehicles have community-based partner 7. Group Discussion • MassPRIM Targeted investment policy • Discussion of the five key aspects of policy in light of best practice findings 8. Benefits of these investments for the pension fund and community • Sensitivity to emerging markets • Financial returns • Geographic impacts • Revitalized communities 9. Measuring impacts • Financial returns • Collateral or ancillary benefits • Measuring ancillary impacts • Monitoring investment vehicles • Track records to-date 4
Session Three: Small Group Exercise (11:00 – 12:15) 1. Developing targeted investment policy (35 minutes) • Break into 6 groups, assign recorder with flip chart, assign presenter to bring back group work to plenary. • Drawing on already existing pension fund policies in your material, develop a targeted investment policy including asset class, amount of commitment, target, and measurement for pension fund. 2. Plenary Presentation from groups (5 minutes each - 30 minutes)
3. Wrap up (10 minutes)
Reference List Articles and papers of interest Alexander, A.L. (2006) Goldman Sachs Bullish on the EDM. Journal of EDM Finance, Fall. Ambachtsheer, K. (2005) The Ambachtsheer Letter: But what does the turtle rest on? A further exploration of investment beliefs. January, Letter #228,
