This paper argues that pension funds can earn attractive risk-adjusted rates of return on targeted private equity investments in underserved capital markets. Targeted investing is designed to achieve both a financial and social return. Fiduciary duty requires public sector pension funds to put financial obligations at the forefront of their decision-making. However these funds also have a vested interest in ensuring vibrant, healthy communities that in turn underpin employer contributions to the fund. We examine the California Initiative of the California Public Employees Retirement System (CalPERS) as a model of targeted investment. Though this initiative is in its early stages of development, we draw some implications for best practice in targeted investment from this case study.
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