Earlier this month Alicia Munnell, a Boston College expert on retirement systems and former economic advisor to President Clinton, penned an op-ed in the New York Times in which she argued against having public pension funds divest their shares of gun manufacturers, which she sees as a continuing politicization of the investment strategies of the funds at the expense of their obligations to government employees and taxpayers. Earlier this week Calpers' board ignored her advice and voted to follow Calsters in selling shares of gun makers. For Calpers and Calsters, this is only the latest in many politicized investing decisions that have cost the funds dearly and placed an enormous burden on the funds' investment professionals.
In 2011 Mercer Consulting prepared a report for Calpers in which it said it found 111 different environmental, socially responsible and corporate governance policies, commitments and other directions that the funds' investment pros had to adhere to. As Ed Mendel at Calpensions reported, one of Calpers' top investment managers described the unwieldy directives to the board:
One of the funds' earliest divestments was of tobacco stocks, just before they began their long upward march. A 2008 Calsters report estimated the fund missed out in $1 billion in appreciation of shares it previously owned in the sector, according to this story. The funds also refused to invest in shares of companies in countries whose labor practices the board of Calpers didn't approve of, including China and India, missing out in growth in these rapidly developing economies.
Socially responsible investing is not just about what you divest, but what you buy with the freed up dollars. According to the Bloomberg story I link to above, Calpers and Calsters redirected some of their funds into California real estate in an attempt to bolster the homeland economy. That investing ramped up between 2004 and 2006, just as the California real estate bubble was inflating. Over time Calpers real estate bets went from bad to absurd. When the whole thing fell apart, Calpers real estate portfolio declined by whopping 42 percent, according to a Feb. 11, 2011 story in the Los Angeles Times.
As Munnell points out in her piece, politicizing pension fund investments is a slippery slope especially for our "already weakened" funds. I would say Calpers and especially Calsters fit squarely into that "already weakened" category.
But no matter. There's always the California taxpayer to bail the funds out when these kinds of political manipulations of their mission don't work out.
"We desperately, the investment office, need a real prioritization of the issues you want us to engage on...We cannot engage on 111 discrete statements."Much of this mission is the result of the Double Bottom Line initiative put in place in 2000, after former state treasurer Phil Angelides decided that Calpers and Calsters could use their investing might to both do good and do well. It didn't quite work out that way.
One of the funds' earliest divestments was of tobacco stocks, just before they began their long upward march. A 2008 Calsters report estimated the fund missed out in $1 billion in appreciation of shares it previously owned in the sector, according to this story. The funds also refused to invest in shares of companies in countries whose labor practices the board of Calpers didn't approve of, including China and India, missing out in growth in these rapidly developing economies.
Socially responsible investing is not just about what you divest, but what you buy with the freed up dollars. According to the Bloomberg story I link to above, Calpers and Calsters redirected some of their funds into California real estate in an attempt to bolster the homeland economy. That investing ramped up between 2004 and 2006, just as the California real estate bubble was inflating. Over time Calpers real estate bets went from bad to absurd. When the whole thing fell apart, Calpers real estate portfolio declined by whopping 42 percent, according to a Feb. 11, 2011 story in the Los Angeles Times.
As Munnell points out in her piece, politicizing pension fund investments is a slippery slope especially for our "already weakened" funds. I would say Calpers and especially Calsters fit squarely into that "already weakened" category.
But no matter. There's always the California taxpayer to bail the funds out when these kinds of political manipulations of their mission don't work out.
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