Pension Funds Plan to Invest in Homes for Poorer Families

Article excerpt

Two of the nation's largest pension funds have announced that they will use some of their assets to help finance housing for low-income families.

Monday's announcement is significant because it involves the California Public Employees' Retirement System, which has long been the trend-setter in the pension industry, and because the pension money actually will be spent on bulldozers and cement.

In the past, state pension funds have mostly confined their low-income housing investments to the purchase of mortgages on existing buildings.

Clinton administration officials hailed Monday's announcement as an innovative approach to addressing homelessness without spending a lot of taxpayer money. Besides the public employees' fund, the California State Teachers' Retirement System also will take part.

Officials at the funds said they expected to earn returns as attractive as those offered by more conventional investments.

The public employees' fund, the nation's largest pension fund with $81 billion in assets, agreed to lend $150 million for the construction of town houses and apartments for California families earning between $12,000 and $45,000 a year.

The California teachers' pension fund, with $50 billion in assets, will guarantee the repayment of an additional $75 million in bank loans to low-income housing developers in the state. The developers will be charged a fee equal to roughly 1 percent of the value of these loans in exchange for the guarantees, said Patrick L. Mitchell, the fund's director of equities and fixed income investments.

"We're doing this with the primary objective to benefit the fund," he said. The teachers' pension fund is not lending the money outright, preferring to put its cash in long-term investments such as 30-year Treasury bonds instead of one-year and two-year construction loans, Mitchell said.

A few pension funds have begun to buy mortgages issued by banks to low-income families. But it is extremely unusual for a fund to become involved in providing construction loans or guarantees, especially on such a large scale, said Lee Smith, the executive director of the Excelsior Capital Corp., a not-for-profit company in Manhattan that helps pension funds find investments that help their communities.

"It's very innovative for them to be playing these roles, and it shows what pension funds can do when they break out of traditional roles," Smith said. …