AFL-CIO HIT to Invest $1 Billion in Bay Area Rental Housing

Funding will go toward 4,000 units that will be listed as market-rate, workforce, and affordable in one of the nation’s most costly housing markets.

The AFL-CIO Housing Investment Trust (HIT) will invest $1 billion to boost rental housing in the San Francisco Bay Area over the next five years.

The funding will go toward 4,000 housing units that will be listed as market-rate, workforce, and affordable in one of the nation’s most costly housing markets, the fund said last week. HIT said it expects 12,000 total jobs to be created, about one-third of which will be for union construction workers.

The union pension fund will invest $500 million and leverage another $500 million from other union, public, and private financing partners.

“Too many people in the Bay Area are being laid off and too many still cannot afford decent housing,” said Chang Suh, chief executive and co-chief portfolio manager at HIT. “A bold, multi-year effort is urgently needed.”

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The housing investment trust is overwhelmingly invested in fixed-income securities that contributed to the creation of multi-family housing over the course of its more than 35-year history. HIT already has invested $396.1 million in 19 projects throughout the Bay Area, Suh said.

As of June, the $6.5 billion fixed income mutual fund had about 73% in multifamily permanent mortgage backed securities, according to the firm.

Thus far in the calendar year, HIT said it gained 5.45% in the six months ending in June, failing to beat the Bloomberg Barclays US Aggregate Bond Index gain of 6.14% over the same time period, its most recent semiannual report said.

HIT said in its announcement and in the past that it seeks to produce “competitive” returns for its pension fund beneficiaries, but its gains have been called into question at least once before by the San Francisco Employees’ Retirement System (SFERS), which proposed terminating the asset manager last June.

At the time, investment chief Bill Coaker, who was culling poor-performing money managers, said the housing trust had investment returns of a little over 2% annualized in the last five years. But the asset manager won over board members, who admired HIT’s record for creating affordable housing in the Bay Area and said they believed the fund when it said it was placed in the wrong return category, resulting in poorer results.

“The AFL-CIO Housing Investment Trust’s strategy seeks to provide higher yield, higher credit quality, and similar interest rate and prepayment risk compared to its benchmark, the Bloomberg Barclays US Aggregate Bond Index,” Michael Cook, co-chief portfolio manager at HIT, said in response. “It may provide choices for pension portfolios that need a lower level of credit risk, especially during periods of elevated uncertainty.”

San Francisco has suffered from skyrocketing housing costs that spurred a growing homelessness crisis in the region. But year over year, list prices in San Francisco have fallen 4.9% and inventory has risen 96%, according to an August report from housing database Zillow.

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Tags: AFL-CIO, AFL-CIO Housing Investment Trust, Pension, trade union

Anne Simpson, CalPERS Interim Managing Investment Director, Board Governance & Sustainability

As wildfires rage and elections loom, protecting portfolios from climate risk, carbon taxing, and
climate change is on investors’ minds. On Sept. 10 at 2 p.m., CIO will feature a live conversation with CalPERS Interim Managing Investment Director, Board Governance & Sustainability, Anne Simpson and ISS ESG Head of Investor Consulting Climate Viola Lutz on “Climate Risk and Financial Performance,” part of CIO’s new Allocator Insights series. The two will discuss ways to assess climate’s truest risks and how climate change translates to a near-term portfolio context, as well as the primary factors to get right.

Viola Lutz, ISS ESG Head of Investor Consulting Climate

CalPERS is in the midst of measuring climate risk for all its holdings, and recently finished assessing its public investments. Simpson will speak on key takeaways from the process that have been both protective and additive to her portfolio’s holdings. Lutz will share how new data is being transformed into metrics and measurements by investors, and ways it is being applied to investments. She has also been involved in developing sustainability-linked bond principles for companies for the years ahead. She will discuss new tools that can help investors to foresee their own risk scenarios, and stress test their portfolios by applying their own climate scenario assumptions to companies’ financial statements to assess financial impact.

During this discussion, we’ll be asking such questions as: When measuring for scope, if only a percentage of companies are reporting correctly, how do you assess a sensible outcome? With all of climate change’s uncertainties, shouldn’t a CIO be agnostic and focus on opportunities within the current market? What are solid ways of measuring risks to each portfolio holding, as well as to the portfolio in aggregate? How can allocators provide guidance on climate risk if they do not manage money directly? As one gets started, what are the top three things to consider?

Simpson reports to the CalPERS CEO and is responsible for strategic initiatives across the $400 billion fund. These include Climate Action 100+, a global investor alliance of over $35 trillion driving business action on climate change. She also serves on the US Securities and Exchange Commission (SEC)’s Investor Advisory Committee, the Robert F Kennedy Leadership Council, and Senior Advisory Board of the Center for Responsible Business, at Haas Business School, UC Berkeley. Among her publications is “The Financial Ecosystem: The Role of Finance in Advancing Sustainability” (Palgrave MacMillan) with Satyajit Bose and Dong Guo, at Columbia University. Simpson was recognized by TIME Magazine as one of 15 women globally leading the fight on climate change

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Lutz is head of investor consulting climate at ISS* ESG working on topics at the intersection of finance and climate change. She works with investors on assessing the climate impact of investments and contributing to developing proxy voting solutions that integrate climate considerations. She is also responsible for Second Party Opinions for green and social bonds. Lutz is co-author of several studies including, most recently, a study on climate risks for the Austrian financial market. She holds an master’s from Sciences Po Paris and a bachelor’s in economics from the University of St. Gallen, Switzerland.

*ISS is the parent company of ai-cio.com.

Tags: Anne Simpson, CalPERS, Climate Change, climate investing, ClimateAction100, COP26, Viola Lutz