It's a good question. Literally, the acronym stands for "economically targeted investment", but the ETI is as much an American phenomenon as it is concept. In recent years, numerous pension funds in the United States have implemented asset allocation programs designed to meet return benchmarks and prudential standards, but also with the intention of simultaneously producing positive economic effects.
A more precise definition is elusive. The federal Department of Labor (DOL) - agent for the Employee Retirement Income Security Act (ERISA) - has described the ETI as pension investment selected, apart from its returns, for the "ancillary benefits" it may create. DOL examples include "expanded employment opportunities, increased housing availability, improved social service facilities and strengthened infrastructure." In practice, ETIs achieve this end by focussing on perceived areas of under-investment in the American economy, through a variety of financial means and structures.
While existing for decades - the earliest ETIs appear to be real estate pools, initiated in the 1960s and 1970s by multi-employer pension funds in the private sector - this model certainly gained traction in the 1990s. This is chiefly due its appeal to very large public sector pension funds, such as CalPERS, CalSTERS and funds in New York and Pennsylvania and the support afforded by city, federal and state governments, as well as large charities and endowments (e.g., the Ford Foundation). In the early 1990s, the Institute for Fiduciary Education found that 119 funds, in a majority of states, had committed almost $20 billion (US $) to various internally and externally-managed ETIs.
ETI programs reflect a dizzying array of goals. Mandated financing targets include affordable housing, commercial real estate, high technology start-ups, infrastructure investment, local economic development, minority and women entrepreneurs, mortgages of plan members, projects employing unionized workers, restructuring manufacturing firms, and SMEs. Structurally, many are straightforward adaptations of conventional market vehicles for pooling pension assets - for instance, to commit to venture investing, though perhaps geared to a specific business type or community. Others have broken new ground. New York City pension funds, such as the New York City Employees Retirement System, sponsor a unique selection of ETIs. These include a loan progam for rehabilitating multi-family and mixed-use buildings in poor neighbourhoods, mortgage-backed financing of low-income home ownership and term loans that average $100,000 for SMEs of all kinds.
ETIs also have severe critics south-of-the-border who point to some ill-fated examples at the state level where pension participation was mandatory or suggested conflict of interest situations. Many ETIs have also been widely credited, however, for creating jobs and other social goods (e.g., new housing and infrastructure stock) without apparent sacrifice of returns. A possibly decisive blow was struck for the ETI model by ERISA regulators in a series of official pronouncements in the mid-1990s, confirming its fiduciary permissibility, if appropriate risk-adjusted returns are ensured. Other legal and supervisory authorities have echoed this view.
Sources: DOL, Interpretive Bulletins and Federal Regulations, 1994; Office of the Comptroller, NYC, Targeted Investment Programs, 1998; Zanglein, Jayne, "Harnessing the power of pension funds", The Labor Lawyer, 1995