A few days ago we highlighted the reckless efforts of the San Francisco Board of Supervisors to force their city’s pension managers to ignore their fiduciary duties and dump nearly $500 million worth of energy stocks. Of course, the pressure to sell had nothing to do with financial projections, trading multiples or discounted cash flow analyses but rather was a blatant and irresponsible attempt to push the board’s political agenda irrespective of the ultimate financial consequences such actions might have to pensioners and tax payers (see: What Fiduciary Duty? San Fran Politicians Try To Force Pension To Dump $470MM Of “Fossil Fuel” Stocks).
But it’s not just San Francisco politicians who are increasingly pressuring pension mangers to ditch their fiduciary duties in pursuit of a liberal political agenda. As columnist Ben Howe points out today in an op-ed published in the Washington Examiner, “Social Justice Warrior type pension fund trustees” are sacrificing returns for political agendas all across the country.
To make matters worse, some Social Justice Warrior type pension fund trustees are risking suboptimal returns by prioritizing political agendas over dollars and cents. If the economy falters even a little, that means your wallet will be raided if you live in a blue state where said Warriors are suiting up for battle.
It’s painful to even think of, but it’s likely that at some point in the next couple of years, the economy will slip. We’re currently in the third-longest economic expansion in the whole of US history (crazy and reality-disconnected as that sounds). It seems unlikely that that will continue indefinitely. Assuming it doesn’t, we can bet public pensions aren’t going to experience the high returns they did this year in 2018, or 2019, or 2020. And the Social Justice Warriors are going to make it worse.
New York City Public Advocate Letitia James has been calling for JP Morgan to sever financial ties with some private prison companies, because she doesn’t approve of how they make their money. And she’s threatening to use the City pension fund’s investments with JP Morgan to force them into severing those ties. That’s a purely-politically-motivated investment decision that could well impact the financial health of the city pension fund, meaning more taxpayer money having to prop it up, all because James thinks her political views are more important than profit assessments made by Jamie Dimon’s employees. James seems to have forgotten she has a legal duty to deliver the best financial results for the fund.
Out in Minneapolis, the City Council “asked city staff to explore ending the city’s relationship with Wells Fargo because of the bank’s investment in the Dakota Access pipeline.” California legislators are also mulling forcing divestment from firms involved with the Dakota Access Pipeline, at the same time they are being dinged for forcing CALPERS and the teachers’ fund to divest from coal stocks — just before a rebound in those stocks occurred.
Adding insult to injury, the Los Angeles Daily News recently noted that a CalPERS study from October 2015 found that politically-motivated divestment had cost California pensioners, and therefore taxpayers, $8 billion in lost profits over a 15-year period.
Under the Public Divestiture of Thermal Coal Companies Act of 2015, the California Public Employees’ Retirement System and California State Teachers’ Retirement System were required to divest their coal holdings by July 1, 2017. Unfortunately for taxpayers, this divestment coincided with a strong rebound in coal stocks. As the Sacramento Bee reported, “Stocks for 13 of the 14 companies are worth more than they were a year ago when the pension fund was divesting from the industry.”
This is just the latest example of politically motivated divestment policies, which have also targeted tobacco companies, firearms manufacturers, private prison operators, companies that might compete with state and local government workers for contracts, and companies that did business with apartheid South Africa. This has often had a significant negative impact on pension investment performance. CalPERS’ divestments cost it approximately $8 billion over a 15-year period, according to an October 2015 report from Wilshire Associates, CalPERS’ main investment consultant.
Of course, when terrible decisions like these result in the inevitable collapse of America’s already failing pensions, these same politicians will be the first to take up a microphone and blame “millionaire, billionaire, private jet owners” for not “paying their fair share.”