The nine-member Board of Trustees of the Kansas Public Employees Retirement System (KPERS) meets Friday, March 25th, to discuss dumping Russian securities in its portfolio.
The meeting comes in the wake of a call to divest from State Treasurer Lynn Rogers to protest Russia’s invasion of Ukraine. Currently, $35.9 million of Russian holdings are in KPERS, about .14% of its portfolio.
In his press release, the treasurer cited a moral obligation to act:
“While I am only 1 of 9 trustees for the KPERS board, I am calling on my fellow KPERS trustees to continue to work to divest from Russian entities as soon as possible. I’m in full support of the financial sanctions placed against Russia – the aggressor in this escalating war.
“As KPERS reported, less than .14 percent, or $35.9 million, of KPERS investments include Russian securities. I will be working with my fellow trustees to protect the interests of our members and their beneficiaries.”
But it may not be that simple, or that quick for KPERS trustees, accountable to pensioners.
An article in The Wall Street Journal says a deteriorating Russian economy and international backlash against its regime may make buyers scarce:
Retirement systems divesting from Russia can expect to sell at a significant loss, pension officials and other asset managers said. Russian stocks and bonds held by the $68 billion Maryland State Retirement and Pension System, for example, had a market value of $96 million as of Thursday, down from $197 million a week before, the fund said.
Pension funds willing to take the loss still might have difficulty unloading their positions as countries hand down sanctions and prospective buyers and financial-services providers back away from Russian investments, said David Kotok, chief investment officer at Sarasota-based Cumberland Advisors.
“Selling into a market which is either closing, doesn’t want to buy, or is under restrictions is one of the most difficult things you can do,” Mr. Kotok said. “You have to have a payment mechanism that’s not interrupted. Even if I’m willing to take 10 cents on the dollar…how do I get paid?”
Pulling out of Russian investments may be easy to justify given Putin’s invasion of Ukraine, but the underlying principle — letting politics dictate investment decisions — is contrary to trustees’ fiduciary responsibility. For example, imagine KPERS trustees refusing to invest in green technology.
Mixing politics and pensions is not new. In previous decades, retirement systems have been urged to divest of holdings in South Africa, Sudan, and Iran, for example.
In an article entitled “Keeping Politics out of Public Pension Investing,” Leonard Gilroy and Steven Gassenberger with the Reason Foundation’s Pension Integrity Project, argue the two are often at cross-purposes:
Times have changed since public pension systems relied predominately on contributions and high yield bonds to fund earned pension benefits. The average state and local public pension today relies heavily on global and private investment strategies to honor pension obligations, making public pension funds some of the largest, most active investors in the world. Unfortunately, some politicians see these investments as opportunities to use billions in taxpayer and member contributions in support of social and political interests.
Policies directing politically motivated, activist investments counter to fiduciary obligations undermine public pension fund governance and increase financial risk for future generations.