Research Department
International Foundation of Employee Benefit Plans
18700 West Bluemound Road
P.O. Box 69
Brookfield, Wisconsin 53008-0069
(414) 786-6710, ext. 8440
E-mail: research@ifebp.org
This report, produced as an outgrowth of the work of the Greater Milwaukee Pension Investment Workgroup, examines the feasibility of an economically targeted investment program in Wisconsin. ETIs are investments, typically but not exclusively made by pension funds, that try to capture both financial and nonfinancial returns on investments. Pension funds have a legal obligation to their beneficiaries to maximize their risk-adjusted return on investment. However, effective ETI programs can identify investments earning risk-adjusted, market rates of financial return and then, out of this pool, identify those investments offering the greatest nonfinancial benefits, such as economic development and job creation.
The focus of this report is whether public and private pension funds in Wisconsin can work together to increase the size and scope of targeted investment programs in the state and region. More specifically, the report identifies promising opportunities for new targeted programs, discusses guidelines for developing these programs and proposes a cooperative way for Wisconsin's pension funds to work together in an ETI program.
The first part of this report reviews the current allocation of assets by Wisconsin's largest public pension funds and reveals some apparent investment opportunities in venture capital, small and middle-sized companies, micro-enterprises and housing investments. The second part analyzes the experience of some of the more noteworthy targeted investment programs undertaken in other parts of North America, including the Texas Growth Fund and the Quebec Workers Solidarity Fund.
Finally the report examines various mechanisms for initiating an ETI program in Wisconsin. A Private intermediary, the Wisconsin Investment Forum, could be created to function as a low-cost consortium in which a group of pension funds voluntarily work together as follows: first, identify promising ETI opportunities; second, solicit proposals from outside investment managers for investment products that will carry out one or more of the ideas; third, co-invest in the new programs; and fourth, monitor the new investments.
The Wisconsin Investment Forum would be a type of investors' cooperative, organized and controlled by the participating funds. It would use a request for proposal process to find qualified private investment managers to set up new targeted investment programs. In addition, it would have a very small staff of investment professionals to monitor the programs, assess their impact and help implement initiatives with qualified private investment professionals.
Although identification of precise investment opportunities must flow from the in-depth company research that is part of any well-functioning ETI intermediary, there appear to be promising opportunities for new targeted investments by the Wisconsin Investment Forum. These include:
Finally, the report's authors recommend Wisconsin consider the legislation necessary to finance a more wide-ranging ETI program, modeled on the Quebec Solidarity Fund. Wisconsin banks and other financial institutions might also consider following the model of the New York City Investment Fund, which relies on private financing and, like the Solidarity Fund, is able to invest in a more flexible manner than public and private pension funds.
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