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