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