Pub­lic pen­sion sys­tem to sell all to­bacco stocks

The Denver Post - - BUSINESS - By Jonathan J. Cooper

The na­tion’s largest pub­lic pen­sion sys­tem is giv­ing up to­bacco.

The Cal­i­for­nia Pub­lic Em­ploy­ees’ Re­tire­ment Sys­tem de­cided Mon­day to sell its last $550 mil­lion worth of to­bacco-re­lated in­vest­ments nearly two decades af­ter trad­ing away the bulk of them.

In a 9-3 vote, the CalPERS in­vest­ment com­mit­tee dis­re­garded the advice from its own fi­nan­cial ad­vis­ers who rec­om­mended re­vers­ing a sell-off of to­bacco stock that was ap­proved in 2000, which has cost the sys­tem more than $3 bil­lion in lost earn­ings.

At that time, CalPERS di­vested to­bacco hold­ings man­aged by its in-house ad­vis­ers, but it al­lowed out­side man­agers to re­tain the in­vest­ments they con­trolled.

Pub­lic health or­ga­ni­za­tions op­posed a rein­vest­ment, say­ing it would send the mes­sage that Cal­i­for­nia sup­ports a prod­uct that causes can­cer and raises health care costs.

The re­view of the di­vest­ment de­ci­sion comes as CalPERS strug­gles to strengthen its fi­nances and as a grow­ing num­ber of re­tirees draw pen­sions.

CalPERS now spends more money each month than it takes in from tax­payer con­tri­bu­tions and the earn­ings on its $304 bil­lion worth of in­vest­ments. The pen­sion fund has enough as­sets to cover only 68 per­cent of promised ben­e­fits. The sys­tem’s in­vest­ments earned just 0.61 per­cent in the last fis­cal year and 2.4 per­cent the year be­fore, far short of the 7.5 per­cent earn­ings tar­get.

“I am not aware of any­one who smokes or doesn’t smoke based on whether CalPERS in­vests or doesn’t in­vest,” said JJ Jelin­cic, a mem­ber of the CalPERS in­vest­ment com­mit­tee who fa­vored rein­vest­ing in to­bacco. “And if we’re not chang­ing be­hav­ior, then what are we get­ting for the money we’re giv­ing up?”

CalPERS has long taken a dim view of di­vest­ment as a strat­egy to in­flu­ence pub­lic pol­icy, pre­fer­ring to use its clout as a large in­vestor to pres­sure com­pa­nies in which it owns stock. The agency says it is ob­li­gated to max­i­mize in­vest­ment earn­ings to pro­tect the long-term avail­abil­ity of re­tire­ment ben­e­fits and min­i­mize costs to tax­pay­ers.

Nonethe­less, CalPERS de­cided in 2000 that mount­ing pres­sure from law­suits and de­clin­ing rates of smok­ing jus­ti­fied selling off to­bacco-re­lated in­vest­ments.

Fi­nan­cially, it was a bad bet. In the 15 years since, to­bacco was the sec­ond-high­est per­form­ing in­dus­try and sig­nif­i­cantly out­per­formed the mar­ket, CalPERS ex­perts wrote, and in­vestors who didn’t sell off reaped 900 per­cent cu­mu­la­tive re­turns.

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