Pension Funds: America's Secret Capital Weapon


December 07, 1992|By NEAL R. PEIRCE

WASHINGTON — Washington. -- Americans' accumulated pension assets are little short of staggering: $3 trillion altogether, up 500 percent since 1978, one of the greatest capital pools in world history.

Contrast that to our Himalayan national debt of more than $4 trillion and state-local budgets wracked by recession, and it's little wonder that President-elect Bill Clinton and his domestic-policy advisers are being urged to take a careful look at community-based uses for pension funds.

''Pension funds can be targeted to a national 'Rebuild America' investment initiative to promote urban revitalization, job creation and housing without inordinate risk to retirement systems or sacrificing investment returns,'' Linda Tarr-Whelan and Rich Ferlauto of the Center for Policy Alternatives argue in a memo sent to Mr. Clinton's domestic-policy advisers.

In his book, ''Putting People First,'' Governor Clinton specifically named ''pension-fund contributions'' as one of the ways to fund a $20 billion Rebuild America Fund. An Arkansas program he approved seven years ago encourages public pension funds to invest 5 to 10 percent of their funds in Arkansas-based businesses. Arkansas officials claim they've successfully stimulated job creation, ranging from small businesses to a start-up medical clinic, without undue risk or sacrificing a competitive rate of return.

In the professional investment or retiree worlds, though, there is visceral hostility to any thought of applying pension funds to socially beneficial, or what are now widely called ETIs, economically targeted investments. David Vienna, consultant for the $70 billion California Public Employees Retirement System, tells the industry weekly, Pensions and Investments, that politicians are putting ''pressure'' on the funds to ''encourage if not compel'' them to make investments they wouldn't make as fiduciaries for pensioners.

In Washington, a representative of the American Association of Retired Persons complains that asking pension funds to consider ''some social policy'' could well imperil retirees' interests and should be resisted.

Overwhelmingly, however, the case in favor of tapping Americans' saved wealth to make our nation and society whole again is the stronger.

It's true that state pension funds in Kansas and Connecticut have been singed by unwise investments in in-state enterprises. There is a danger that pension trustees can come under political pressures for ill-considered investments.

But in Massachusetts, State Treasurer Joseph Malone has a blue-ribbon panel at work on a set of strict guidelines for social investments that are fiducially sound and fill real ''gaps'' in capital markets. In New York, the Excelsior Capital Corporation, set up by Gov. Mario Cuomo, acts as a financial intermediary and screen for public pension funds, helping them identify safe and appropriate investment opportunities.

In September, Wisconsin's state investment board became the first public pension fund to commit $50 million to a national trust -- the Commonwealth Diversified Trust -- which is seeking multiple state commitments to spread risk and avoid political pressures.

Almost half the country's 99 largest public pension systems have made economically targeted investments -- often but not always with some type of government guarantee (Fannie Mae or the Small Business Administration). Among them are housing loans recently initiated by state treasurers in California, Pennsylvania and Connecticut. Almost everyone agrees that if the incoming Clinton administration could fashion partial federal guarantees, the volume of such investments, especially in such new fields as child-care, job training and community-development banks, could soar in the next years.

Ultimately, Clinton & Co. may have no choice. There's too much money in the pension funds to be ignored. Given their druthers, notes New York city comptroller Elizabeth Holtzman, ''private pension funds would be invested in Singapore or Hong Kong or Argentina. What about putting the money to work in our cities?''

The ultimate message has to be that the trillions in these funds aren't money from Mars -- they are part and parcel of America's wealth, to be used prudently for retirees' protection, but just as important, to strengthen the nation on which all of us -- retirees, workers and youth alike -- depend.

Getting that message across means Mr. Clinton will have to use the fabled presidential ''bully pulpit'' to press the case for rapid but responsible expansion of economically targeted investments. He'll have to instruct his Cabinet to do the same.

In a season of foreboding economics, the pension potential -- what Jesse Jackson appropriately calls ''the stealth force in the American economy'' -- can and should be exciting news.

Neal R. Peirce writes a syndicated column on state and urban affairs.

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