New Hampshire’s two pension systems have filed lawsuits asking a court to decide if the state’s Sudan Divestment Act is constitutional.
The law, passed last spring, requires the systems to shed investments of what it calls companies that support Sudan’s campaign of genocide.
But the pension systems argue they are by law required to get the best return for investors.
New Hampshire Public Radio’s Amy Quinton reports.
Social investing limits investment choices to companies whose products or actions are considered socially acceptable.
That could mean refusing to invest in the tobacco industry or - its more recent manifestation - eliminating holdings in companies doing business with the government of Sudan.
New Hampshire now requires its two public pension systems - the judicial retirement plan, and the state retirement system - to divest from selective companies doing business in Sudan.
Daniel Millenson with the Sudan Divestment Task Force says New Hampshire is not the only state adopting the policy.
“3:33 about 27 states have divested, 19 of them have used this targeted divestment model that NH has chosen to do, which basically means instead of going after any company that does business in Sudan, you only focus on the one’s that are worst, that are materially supporting the Sudanese government”
Most of those businesses are foreign owned oil, power and mining companies or those providing military equipment.
But money managers, including public pension fund managers, have basically one mission: get the best return for investors.
In New Hampshire, the constitution states that public retirement plan managers must make decisions for the exclusive purpose of benefitting members.
That’s why the issue is headed to court.
Retirement system Legal Director Tim Crutchfield says he wants the answer to one question.
“2:14 can you make investments for the exclusive benefit of the members and follow the act, which could mandate divestment.”
Millenson, with the Sudan Divestment Task Force, argues you can.
“Given that the highest offenders actually underperform their peers and given the fact there are financially equivalent and financially superior alternative investments, we believe the laws passed by 19 states for targeted divestment are perfectly consistent with fiduciary duty.”
But divesting isn’t as easy as it sounds.
Retirement system chief investment officer Jeff Gendron says they can’t just blindly follow the new law.
“5:13 you need to evaluate what the current market conditions are, what the current prospects of the subject company are, and what the competitive advantages or disadvantages are of any substitute investments at that point in time.”
Gendron says it’s a moving target.
There are also extra costs and additional complexities from index funds, when the system is invested in a fund with other investors.
9:43 Separating yourself from a co-mingled fund and getting into a different structure, a separate account, will incur different costs because you’re basically asking them to do something that’s customized for just your portfolio.
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“4:00 My basic view is that this is not a game that the public pension managers should be playing”
That’s Alicia Munnell,Director of the Center for Retirement Research at Boston College.
“Anything that takes their eye off the ball of the highest return for the lowest amount of risk is likely to get people in trouble, this is not the way to make foreign policy, it’s probably not effective and I think at the margin it has the likelihood of reducing pension returns.”
Munnell adds that divesting for political reasons may open the door to other mandates on public pension funds.
"it’s a slippery slope, whatever is today’s horror, another country will be repugnant to people down the road so today is Sudan, tomorrow Iran, then how about Saudi Arabia, so the question is when does it stop"
But until the court rules, the systems must follow the Sudan divestment act.
Investment Officer Jeff Gendron says he’s identified that the retirement system has investments in 14 companies doing business in Sudan.
"1:56 we’re broadly diversified portfolio and we hold both domestic and international securities so it’s not surprising to us that some of the companies on the list, particularly in the energy sector – that we would have some holdings, to the tune of about 5.6 million dollars"
Assets from those companies amount to only one-tenth of one percent of the entire retirement system fund.
Supporters of the Act say that’s pretty typical of most public plans.
Again, Daniel Millenson.
"8:15 they typically represent less than half a percent of total portfolio assets, so it’s something that’s pretty easy to offload.
Millenson says when combined with other state public pension funds, it amounts to trillions of dollars."
But he admits that divestment alone won’t stop the genocide in Sudan’s Darfur region.
"18:09 is this alone going to do it, no, is it going to help, I think the answer is very clearly yes, I think that’s reflected in how major companies have packed up and left the country, or better yet changed their behavior and pressured the Sudanese government and I think more and more companies will continue to do so."
The retirement system is now in the process of encouraging the companies to stop Sudan-related operations.
If the companies don’t, the next step would be divestment, unless the court rules otherwise.
For NHPR news, I’m Amy Quinton.
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