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Managing Financial RisksFrom Global to Local$
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Gordon L. Clark, Adam D. Dixon, and Ashby H. B. Monk

Print publication date: 2009

Print ISBN-13: 9780199557431

Published to Oxford Scholarship Online: September 2009

DOI: 10.1093/acprof:oso/9780199557431.001.0001

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Balancing Risk and Return in Urban Investing

Balancing Risk and Return in Urban Investing

(p.189) 8 Balancing Risk and Return in Urban Investing
Managing Financial Risks

Lisa A. Hagerman

Tessa Hebb

Oxford University Press

Investing in the underserved urban markets is an innovative practice in which institutional investors can enjoy competitive financial returns on their investment while stimulating economic growth in urban communities. Over the last three decades, targeted investment has undergone a paradigm shift from the traditional subsidy-driven model to the market-driven model. In the capital-driven model, institutional investors perceive investing in the underserved urban areas as an overlooked economic opportunity. Public sector pension funds look for ways to maximize their overall investment returns while managing risk. In doing so, they seek alternative investment strategies and increasingly allocate a portion of their portfolio to illiquid, riskier investments in pursuit of higher returns. Key to such sound investments is recognizing and mitigating the financial and political risks to which pension funds, particularly defined benefit pension funds are prone. This chapter deconstructs how pension funds use urban investments to meet their long-term liabilities while also managing risk. It argues that pension funds can use urban investments together with risk management tools to achieve their portfolio diversification requirements, through evidence drawn from over 100 individual interviews with pension fund trustees and officers, investment vehicles, and other stakeholders in examining the targeted investing strategies of the large California, New York, and Massachusetts' public sector pension funds.

Keywords:   global finance, risk management, urban investment, financial risk, political risk, pensions, managing risk

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