Funds should heed wishes of retirees, not environmentalists
Pension funds hurt by activists who abhor fossil fuels
The New York City Employees’ Retirement System (NYCERS) comptroller recently announced a new initiative to divest public funds entirely from fossil fuels by 2020. It’s a bold idea. But unfortunately, it’s also an ineffective and wildly costly one that the members of the city’s pension fund and taxpayers will be left to pick up the tab for.
It’s one thing to turn your back on the financial returns from a booming domestic oil and gas industry that has taken the United States from a major net importer to a nearly independent export powerhouse in less than a decade. It’s quite another to do so when the retirees whose money you’re gambling with don’t support it — and, in many cases, don’t know it’s happening.
Public pension holders in New York and California overwhelmingly oppose the practice of pension fund managers prioritizing social and political causes over financial returns, according to a survey released recently by the Spectrem Group. In fact, two-thirds of NYCERS members want fund managers to focus on ensuring pensions are fully funded rather than on supporting political causes.
Nearly 90 percent of public pension participants nationwide share concerns about the amount of time fund managers are spending on political and social advocacy, the Spectrem survey said.
If a recent Wall Street Journal editorial is any indication, they are right to be concerned. The editorial raised serious questions about the level of influence environmental activists are bringing to bear within state governments.
While public-private partnerships are often used to make government more efficient, the lack of transparency around who is paying to set public energy and environmental policies in the deals outlined by the Journal is disturbing.
The apparent collusion between government and anti-fossil fuel activists would be bad enough if it were benefiting these pension funds financially, but that isn’t the case.
The NYCERS pension system currently only has enough money to meet 62 percent of its obligations to retirees. Despite a shortfall of as much as $142 billion, according to the Manhattan Institute, Spectrem’s research shows that 80 percent of New Yorkers mistakenly believe their pensions are fully funded.
The missing billions don’t reflect a marketwide crash either. The stock market is booming. Instead, the losses are largely due to money managers investing for social impact rather than returns, according to a second study from the American Council for Capital Formation.
The study finds that 12 percent of NYCERS assets were invested in a “Developed Environmental Activist” asset class that underperformed by more than 600 points annually
over the last three years.
“NYCERS has not only consistently underperformed the market since 2011, it has also on average underperformed its own benchmark since first being established in 2008,” the report said. “Despite this consistent underperformance, annual fees paid to money managers have grown from $62 million in 2006 to $155 million today.”
If we were talking about a private fund or charity, investment decisions based on political leanings might be acceptable, but public employee pensions are guaranteed by the state, making taxpayers legally obligated to pick up the tab. Research by the American Council for Capital Formation shows that New York City’s yearly contribution to public pensions has increased from $1.4 billion in 2002 to $9.3 billion in 2017, peaking at a near-record 17 percent of city tax revenues and double the 8.5 percent average rate in the early 2000s.
New Yorkers will soon be paying more annually to prop up a poorly invested pension system.
The message is clear: Public pension members want managers to focus on maximizing the return on investments instead of pursuing political agendas. That means making reasonable investments in fossil fuels — a major economic sector and a longterm driver of prosperity that employs more than 1.1 million Americans.
Managers of the California Public Employees’ Retirement System recently called on that state’s policymakers to stop forcing them to divest from exactly those sorts of profitable conventional fossilenergy projects and warned of the dangers of legislating financial decisions.
It’s time for cities and states to heed that warning and put the wishes of their retirees over activists.