PERS and ETIs: a marriage made in the DOL?

• Author: Eitelberg, Cathie G.
• Position: Public employee retirement systems; economically targeted investments; Department of Labor

Q: What is an investment that provides a reasonably competitive risk-ajusted market rate of return, is targeted to fill a capital gap and has an identifiable collateral economic benefit?

A: An economically targeted investment, according to a recent U.S. Department of Labor report.

More than 18 million state and local government workers and retirees have a stake in how the aggregate $950 billion of public-sector pension fund assets are invested. Prudent investment practices in the public sector also benefit a larger group, the taxpayers, who are the ultimate guarantors of retirement benefits. The Public Pension Coordinating Council survey conducted by the GFOA reports that, as of 1992, 21 public employee retirement systems (PERS) were involved in economically targeted investments (ETI).

Investing pension assets within the state or locality to support economic development or housing is nothing new, but PERS have a new suitor: the federal government. National attention was focused on the idea of directing pension fund holdings to "rebuild America" during the last presidential campaign when then-candidate and now-President Clinton included the idea in his manifesto Putting People First. A report followed from the Commission to Promote Investment in America, a federally funded group, recommending that pension funds invest in infrastructure.

Several recent reports and national studies once again have turned up the volume on targeting investments for economic development. This renewed activity has pension funds as nervous as a bridegroom at a shotgun wedding, even though the result could be a happy marriage. Olena Berg, the Department of Labor's (DOL) chief pension official and former deputy treasurer for California, calmed those jitters recently when she addressed public pension fund officials in Washington, D.C. She dismissed the idea of mandated ETIs but suggested that pension funds take advantage of their long investment horizon by getting involved in "relationship investing, corporate governance and, finally, by seeking out and creating prudent investment opportunities in ETIs."

DOL's Electronic Clearinghouse

The DOL wants to encourage the union between pension investors and ETIs by setting up an introduction service of sorts. The eight-member work group on ETIs of the DOL's Advisory Council on Employee Welfare and Pension Benefit Plans--made up of investment managers, attorneys and a retiree representative--issued a report recommending an...