The program, operating since 2001, has generated an annual return of 18 per cent to the fund, according to CalPERS, compared with an initial expected return of just 7.75 per cent. A total of 217 companies have been financed, including small businesses and those owned or operated by minority groups. A research group commissioned by the fund last year estimated that the “total impact” of all CalPERS’ activities on the state of California was a positive US$18 billion a year. The California Initiative involved the injection of US$2.6 billion into “underserved” types of real estate, such as low-income housing, and US$2 billion in private equity.

Rob Feckner, CalPERS board president, said to the conference: “Can you make the same amount of money as well as make social, economic or environmental change? The answer is ‘yes you can’.”

The experience of the much smaller LACERS fund, representing Los Angeles city employees, is probably of more relevance to Australian super funds. The US$11 billion LACERS has devoted 10 per cent of its private equity allocation to social projects such as urban infill, workforce housing and union-friendly construction through the development of a range of partnerships.

Shelley Smith, a LACERS commissioner, said the rate of return had been between 10-20 per cent a year. She said the case could be made for economically targeted investments, but this required advocacy and ownership. “Many US trustees are a little phobic about using words like ‘social’ or ‘responsible’,” she said. “So we had to develop a fiduciary vocabulary. The process has to be well understood and this can take a long time.” She said that if you didn’t have the internal resources of a CalPERS, then you needed to develop partnerships.

There was also a challenge in getting fund staff onboard: “Taking risks is often not the best thing for your career, but following CalPERS is usually a good thing to do.” LACERS hired two specialist consultants to work with the staff and traditional consultants on an innovative investment program in strategic planning. Many of the partners were able to take advantage of green tax credits and urban redevelopment incentives. They were able to acquire land inexpensively.

However, economically targeted investments do not always turn out well for the fund sponsor. William Robson, the chief executive of Canadian policy think tank CD Howe Institute, said that any mandate which did anything other than set out to maximise investment returns was “toxic” to pension plans. He cited the example of the Quebec Pension Plan, which had embarked on a program of “nationalistic investments” and suffered losses from them. The fund had an average return of 4.6 per cent a year over five years before it reviewed its social investments, compared with a peer group median of 5.2 per cent. “I think that an investment-only mandate is critical to any pension plan, especially if members are compelled to join it,” he said.