Monday, 24 September 2007

US pension funds & economic activity

The US public sector pension funds are the giants of the investment world. CalPERS, for example, can have a major influence not just on investee companies, but also on countries. CalPERS took some flak a few years back when it introduced a screening approach to investing in emerging markets. Basically it refused to invest in some countries because of concerns about corporate governance, human rights and so on.

but they can also have a big impact on a local level. Recently CalPERS released a study that looks at it impact on the Californian economy. You can find it here and below is a short excerpt from the announcement of the study:

CalPERS economic impact in 2006 created 124,377 jobs, returned state and local tax revenues of nearly $832 million, and generated employee compensation of $4.9 billion to exceed the payrolls of heavy construction, civil engineering, and motion picture and video production industries.

Overall, CalPERS investments made the pension fund a bigger player in the California economy than machinery manufacturing, oil and gas extraction, and the amusement, gambling and recreation industries.

More than half of the pension fund’s economic impact in 2006 came through private real estate development. About 29 percent was through domestic public equities – activities of public stock companies, and 11 percent in construction-related partnerships.

By region, economic impacts included: Los Angeles, $2.2 billion; San Francisco, $1.6 billion; San Diego, $577.2 million; Inland Empire, $372.3 million; Sacramento, $288.7 million; Central Coast, $89 million; Great Valley, $70.2 million; Northern California non-urban, $46 million; and Central California non-urban, $7.3 million.

Pretty impressive stuff, and it also flags up the fact that North American seems to take the economic impact of its pension funds far more seriously than we do in the UK. Typically commentary from the pensions industry almost seems to make a point of stressing that investments are seeking to do nothing more than generate returns. On one level that is clearly true but it also reeks of the reluctance of the UK to think more creatively about how to use the power of institutional investment.

While I'm on the subject of US pension funds, I also spotted this bit from CalSTRS (the teachers fund in California) about sustainable investing. Again it is the sort of thing that you wouldn't really catch UK pension funds (barring the Environment Agency) doing. It does make you wonder whether we could push public sector funds in the Uk to go a lot further...

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