Economically targeted investing: changing of the guard

Abstract

Introduction Economically targeted investing is the consideration of “investments selected for the economic benefits they create apart from their investment return to the employee benefit plan” (US DOL 1994). Often termed collateral or ancillary, these economic benefits include increased affordable housing stock, greater employment opportunities in low- to moderate-income neighborhoods, urban revitalization and clean technologies. US pension regulation, specifically the Employee Retirement Income Security Act (ERISA), allows for economically targeted investments (ETIs) as long as they do not sacrifice risk-adjusted market-rate financial returns to the pension plan. What ERISA’s Interpretive Bulletin on ETIs makes clear is the process by which such investment selection can be made. ETIs have a long history in the US. First used in the 1980s, the Clinton administration codified their applicability for pension fund investment in 1994 through an Interpretive Bulletin of the Department of Labor (US DOL 1994). However, in the final days of the 2008 Bush administration, a new ERISA Interpretive Bulletin on Economically Targeted Investing (ETIs) was issued by the US Department of Labor (US DOL 2008a). This bulletin, together with a similar directive on the Exercise of Shareholder Rights, seemed an odd choice of issues to place front and center on the political agenda, given that the world was deep in the throes of the sub-prime financial crisis.