New York fund fulfills green promise with $200m Generation mandate

Thomas DiNapoliThe $122 billion New York State Common Retirement Fund has allocated $200 million to Generation Investment Management, partly fulfilling the commitment made by New York State Comptroller, Thomas DiNapoli, in April last year to increase commitments to environmentally focused strategies across the whole portfolio by $500 million in three years.

Generation, an independent, private, owner-managed partnership with offices in London and New York, was co-founded in 2004 by Al Gore and David Blood, and its investment approach is based on the idea that sustainability factors – economic, environmental, social and governance criteria – will drive a company’s
returns over the long term.

This mandate is part of the New York fund’s international equities allocation, which can form up to 10 per cent of the fund’s asset allocation.

Under state law, the fund, which is the third largest in the US, can invest up to 70 per cent of its assets in equities and 30 per cent in fixed income.

Within equities it is restricted to 10 per cent in international, 5 per cent in real estate and up to 25 per cent in any investment that meets prudent investor standards. However the investments in private equity, real estate in excess of 5 per cent, international equities beyond 10 per cent and absolute return strategies are authorised so long as they meet the prudent investor standard.

The majority of the domestic equity is managed in-house, with nearly three quarters of the domestic equity exposure managed using structured index management with internal staff managing S&P 500, S&P MidCap 400 and S&P SmallCap 600 funds.

At the time of the Green Strategic Investment Program announcement last year the fund had $40 million invested in private equity funds focused on renewable energy and clean technologies, and more than $440 million in commitments to funds where clean tech was a component of the overall strategy including more than $16 million invested in New York-based clean tech companies through the fund’s instate co-investment program.

The fund has been reviewing the clean tech and renewable energy sectors for potential private equity investments since 2005. DiNapoli’s Green Strategic Investment Program allows for the expansion of the fund’s
private equity exposure to these sectors while encouraging additional investments across the fund’s entire portfolio.

“Clean technology and renewable energy have become increasingly profitable,” DiNapoli said at the time. “It’s not just about doing good for the environment; going green is good for the bottom line too. The Common Retirement Fund has a unique opportunity to produce strong, risk-adjusted returns while at the same time supporting our goal of curbing
greenhouse gas emissions and decreasing our dependence on foreign energy sources. This investment commitment will put us half a billion dollars ahead of the green curve.”