From STRS: Investment Divestment Bill Affecting STRS Ohio Scheduled for June 5 House Vote

From STRS, June 1, 2007
Subject: [News] Investment Divestment Bill Affecting STRS Ohio Scheduled for June 5 House Vote

Substitute House Bill 151 was voted out of the Ohio House Financial Institutions, Real Estate and Securities Committee on May 30 and is now headed for a vote by the entire House of Representatives on Tuesday, June 5. This bill requires the state's five retirement systems, including STRS Ohio, to divest of investments in foreign companies doing certain types of business (oil production, mineral extraction, power generation or military equipment) in Iran and Sudan. The bill only affects the public employees and retirees in the public pension plans and no other investment funds.

As this bill was discussed in House committee meetings, STRS Ohio's executive director, Damon Asbury, testified in opposition to the bill. The Retirement Board and staff of STRS Ohio understand the important issues this bill is attempting to address. And, like the bill's sponsors, we strongly condemn the acts of the governments of Iran and Sudan in support of international terrorism, nuclear buildup and genocide. STRS Ohio holds nearly $19 billion in global international investments, BUT no direct holdings in the governments of Iran or Sudan or businesses based in those countries.

However, we stand in opposition to this bill as written as it places the Retirement Board's fiduciary duty to its members secondary to the goals of this legislation. The money in the pension trust fund belongs to the members. This divestiture mandate puts a foreign policy objective above the board's fiduciary duty to invest in the sole interest of the membership. In addition, it sets a dangerous precedent of using trust fund money to try to achieve a political or social agenda -- no matter how noble or well intentioned.

We also object because any investment losses we experience as a result of this mandated divestment come out of the pension fund. There are no explicit constitutional guarantees in Ohio requiring the state to make up those losses. Under the provisions of Sub. H.B. 151, it appears that more than 70 international companies may be affected. A preliminary review shows that STRS Ohio has investments in 41 of these companies, with a market value of $1.5 billion. The bill does cap system losses to
0.5%. However, that would translate to a $375 million loss on our current $75 billion investment fund before we could halt divestment activities.

Some proponents point to a fund in Missouri that posted positive returns following divestment. However, this is a $30 million fund, not a $75 billion fund and the results are very short term. We project that our future losses could be up to $75 million annually.

Some proponents of the bill also believe that the pension funds are putting members' money at risk by investing in companies that are doing business in Iran and Sudan. However, investment professionals, such as STRS Ohio's staff, take these issues into consideration when making investment decisions, balancing risk and potential return. Further, the companies on the list are multinational companies (e.g., Royal Dutch Shell) and have investments throughout the globe, which provides overall protection to them -- and to their investors.

STRS Ohio members wishing to voice their opinion about this bill can obtain information via the following link:

http://www.house.state.oh.us/jsps/Representatives.jsp

Contact information can be found at this site by using representatives' names, district number or ZIP code or by accessing a complete House directory. E-mail or a phone call may be the best form of communication since the vote is currently scheduled for next Tuesday.