Investment with Social Impact: Evidence from Commercial Real Estate Investment by Public Pension Funds

Sunday October 3, 2021


This paper studies whether and how investments by public pension funds result in a different social impact, measured by employment growth, relative to investments by other large investors. Using commercial real estate (CRE) investments as a laboratory, I compare direct pension fund CRE investments to a counterfactual of real estate private equity (REPE) CRE investments. I document that CRE investments by public pension funds are associated with 3.5% higher zip code employment relative to REPE CRE investments. The effect is more pronounced for investments in the pension fund’s home state and for investments made by pension funds with more political appointees on their board of trustees. I provide evidence for two potential mechanisms: (1) after a pension fund invests, $40M of additional capital from other investors flows to the invested zip code; and (2) pension funds invest 28% more CAPEX into their properties than REPE funds. Furthermore, investments earning bottom quartile returns exhibit large positive employment impact, especially for home state investments, evidence that suggests a trade-off between returns and social impact.


Elyas D. Fermand, UNC Kenan-Flagler Business School