State pension funds eye ETIs.

• Position: Economically targeted investments

If you want to watch a pension fund manager wince, mention the subject of "social investing." Most prudent experts think that muddying up the risk/reward formula with social goals is unnecessary if not downright dangerous.

But pension funds, government and private, with assets now risen to $4 trillion are a tempting source of funds, and state economies need shoring up. So some states are allowing their pension systems to put money into what are now being called "economically targeted investments" (ETIs), though typically the percentage of total assets that can be so used is severely limited. A new report from the Center for Policy Alternatives found that 27 state retirement systems are involved in ETIs, most of which are for local housing and venture capital projects.

Since 1982, the New York State Teachers Retirement System has invested nearly $2 billion (out of a total of $35.8 billion) in a portfolio of in-state investments that out-performed other securities over five years. Some $425.2 million went for Federal Housing Authority-guaranteed housing projects, underwriting 11,500 units for poor and elderly people and another $325 million for rehabilitation of dilapidated residences.

Colorado Public Employees' Retirement Association (PERA) has invested $42 million (with another $80 million committed) in several Denver-based venture partnerships, helping to create 4,603 state jobs in manufacturing, technology and communications. PERA's goal is to eventually invest 20 percent of its $12 billion assets in-state. A recent PERA project was a $33 million loan to build a gas-powered cogeneration plant. A steam by-product of the plant will be pumped into a nearby 10-acre public greenhouse, which employs 35 people.

Last spring CALPERS, the California Public Employees Retirement System, formally adopted a four-page ETI investment policy that encourages "investment intended to improve the economic well-being of California...localities and residents." Guidelines include such principles as no concession of risk and cost-adjusted return, and no distortion of overall asset allocation and geographic diversification.

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