Economically targeted investment

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Economically targeted investment

• Learning responsible investment

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learning objectives

• Explore decision-making on ETIs
• Understand the language of ETI investment
• Role play a case study related to ETI investment
• Brainstorm a union strategy to promote
  economically targeted investment

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What are ETIs?

• investments that inject capital into an
  underserved market, delivering an appropriate
  rate of return and providing collateral benefits
• create benefits for a geographic area, group of
  people or sector of the economy

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What is targeted investment?

• Economically targeted investing usually focuses
  on private equity or real estate that aims to
  achieve both a financial and a social return
• Social returns are often called collateral
  benefits i.e. the primary goal is to make
  reasonable returns
• ETIs are usually grounded in a geographic
  location, familiar to the pension fund

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Eti examples

• Bricks and mortar investing, e.g., the AFL-CIO
  Housing and Building
• investment trusts Union Labor Life Insurance
  Company, Multi-Employer Property Trust
• Responsible contractor requirements, e.g., public
  fund service contractor compliance
• Regional development funds
• Socially responsible investment (SRI) funds
• Union-friendly investment vehicles
• Worker buy-outs
• Privatization alternatives.

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What asset categories are etis?

• Real estate
• Private equity (venture capital)
• Fixed income
• Infrastructure

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Etis and real estate

• In the U.S., ETIs are most closely associated
  with urban redevelopment because
• downtown locations are strategic
• they offer proximity to business areas
• markets have not yet been saturated
• integration with regional clusters and
• the availability of human resources

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What is the law?

• In the U.S.
• pensions may invest in ETIs so long as the
  investment has been carefully screened and
  selected to meet the prevailing rate of return.
• ETIs are typically held in securities that are
  underwritten by the federal government, such as
  Fannie Mae, lowering risk while maintaining a
  good rate of return

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Etis and canadian law

• Influenced by American regulation
• Trustees should take account of non-financial
  factors to influence long term returns
• Must be articulated in investment policies
• Must be appropriate portfolio diversification

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donovan v. walton

• A Case studyto illustrate the decision-making of
  trustees in an ETI investment

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The players

• Plaintiffs the Department of Labour (DOL)
• Defendants the trustees of the Operating Local
  675 Pension Trust Fund (board of trustees)
• Court United States District Court, S.D Florida,
  N.D., 1985

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Questions for the Plaintiffs

• The Department of Labor
• How will you argue your case?
• What are the significant issues for members of
  the plan in this case?

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QUESTIONS FOR The Defendants

• The trustees of Operating Local 675 pension Trust
  Fund (board of trustees)
• How will you defend your actions?
• What are the significant issues for trustees in
  this case?

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QUESTIONS FOR The Court

• The United States District Court, S.D Florida,
  N.D., 1985
• How would you argue your case if you are the
  plaintiffs or defendants, or decide the case if
  you are The Court United States District Court,
  S.D Florida, N.D., 1985?
• What are the significant issues for trustees in
  this case?

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The Outcome What Really Happened?

• How can we summarize this case?
• What can we learn as trustees?
• What are the implications for the law?
• Does this apply to us in Canada?

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Mapping Targeted Pension Fund Investing in Canada

• 944 pension plan in the database with a value of
  802 billion
• 50 (478) of all plans are 100 Defined Benefit
  (DB) with a value of 679 b.
• 73 (690) of all plans are at least 50 DB
• The 10 largest plans account for 43 (344 b.) of
  all assets. They are all DB plans

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Asset Allocation

• 14 (140) plans have reported real estate
  investments
• 5 (49) plans have reported private equity (or
  venture capital) investments
• 1 (7) funds have reported infrastructure
  investments
• Value of funds with these three types of
  investments, where ETIs are traditionally
  located, is 550 b.
• 70 of these funds are DB plans

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Targeted Investing in Canada

• Pensions at Work examined 60 funds with real
  estate and or private equity investments
• 13 funds (22) had some form of targeted
  investment policy or program
• New Brunswick, Quebec, Ontario, Saskatchewan and
  B.C. all had funds with an in-province focus
• 10 funds had both a targeted investment policy or
  program and a responsible or socially responsible
  investment policy.

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Concert Properties Impacts

• Twenty pension funds invested in Concert
  Properties
• Created 6.5 million person hours of on-site
  construction jobs (union)
• Rates of return for investors exceed real estate
  benchmarks. To date 28 m. back to pension fund
  investors
• Provides affordable rental housing, affordable
  for-sale housing, community centers, day care
  facilities, and seniors residences. Projects in
  B.C. and Ontario

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Developing a union strategy

• What next?

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Questions to consider

• What are the arguments in favour of ETIs?
• Describe how you could suggest starting an ETI
  strategy
• What do you think are some problems in investing
  in ETIs?
• How can these problems be overcome?

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Eti resources

• Sean Harrigan (2003). Economically targeted
  investment Doing well and doing good. In eds.
  Isla Carmichael and Jack Quarter. Money on the
  line. Workers capital in Canada. Ottawa CCPA.
• Kathryn Manley, Tessa Hebb and Edward Jackson (in
  press 2006). Economically targeted investing
  Financial and collateral impacts. In eds. Jack
  Quarter, Isla Carmichael and Sherida Ryan.
  Pensions at work. Unions and social investment in
  Canada. Toronto UT Press.
• Gil Yaron (in press 2006). Fiduciary duties,
  investment screening and economically targeted
  investing A flexible approach for changing
  times. In eds. Jack Quarter, Isla Carmichael and
  Sherida Ryan. Pensions at work. Unions and social
  investment in Canada. Toronto UT Press.
• Severyn Bruyn (1987). The field of social
  investment. Cambridge Cambridge University
  Press.
• Archon Fung, Tessa Hebb and Joel Rogers (2001).
  Working capital. The power of labors pensions.
  Ithaca Cornell University Press.

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