New York City RFI Response

The Institute for Pension Fund Integrity (IPFI), a non-profit organization which seeks to ensure that state and local leaders are held responsible for their choices in public pension investment, responded today to the New York City Comptroller’s request for information (RFI) regarding how to divest city pensions from energy company holdings. See IPFI’s response to the New York City Request for Information.

 

 

Connecticut Post: An old pension warrior’s new mission

Don’t say the words “socially responsible investing” to Christopher Burnham. He’s a man on a mission — to take politics out of public pension fund investing.

 

Anything that smacks of a city or state directing its pension money for the purpose of advancing an agenda — like, say, Connecticut divesting from gun companies — is toxic to Burnham, a name many people in Connecticut, especially Fairfield county, should remember from the ’80s and ’90s.

 

“I am evangelizing this position to keep a personal political agenda out of the management of other people’s money,” Burnham said Wednesday, after a breakfast meeting in midtown Manhattan that he organized to push the cause, a new nonprofit organization and website that will name names.

 

Sounds OK on the surface: At a time when pension funds are far behind where they need to be — nowhere more than in Connecticut, which is at least $20 billion in the hole and probably much more than that — it makes no sense to sacrifice annual returns to make the world cleaner, nicer, safer, more inclusive. Those are all political agendas in the end, right?

 

Not so fast. Burnham — a prominent national figure in public finance who was Connecticut state treasurer from 1995 to 1997, and before that, a state representative from Stamford — has waded into waters both murky and stormy. Many pension funds, including Connecticut’s, routinely consider environmental, social and corporate governance issues when it invests in companies.

 

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New York City Pensions- What Happened?

New York City has an underlying fiscal crisis that city officials are failing to address. There is a pension debt of $64.836 billion across the city’s five different pension accounts as of January 2018. This calculation is under a 7% assumed rate of return; this rate is charitable to the fund, as a one-percent decrease in assumed rate would add more than $21 billion dollars of pension debt. If the pension system was to assume the market rate of 3.61%, the pension liabilities soar to a whopping $142.195 billion. The New York City government already contributes more than $10 billion per year to the pension system- more than three times the average operating budget of the 100 largest cities in the United States. So what happened, New York City?

The answer to this question is a simple one: politics. Pension investments have been plagued by poor management and officials seeking political recognition since the 1980’s. Since then New York has weathered tireless social campaigns, including gun retailer and private prison divestment. The result of these noble crusades? Retirees missing billions of dollars in market value and lost investment gains.

More recently, New York City Mayor Bill de Blasio and City Controller Scott Stringer called for divesting $5 billion in fossil fuel stocks from the city’s pension fund. The City Controller has gone as far as releasing a request for information to the public, seeking input for full fossil fuel divestment. Even after the release of multiple academic studies showing the extreme and prolonged losses catalyzed by divestment, Mayor de Blasio still campaigns on the crux of progressive politics. At the rate of current pension spending, the people of New York City will face higher taxes, cuts to services and even possible municipal bankruptcy if these pension issues go unaddressed. New York City must de-politicize pension accounts and start cutting away the financial rot at the core of the Big Apple.

Bloomberg Law: ‘Do Good’ Investing by Retirement Plans to Be Part of New Report

The Labor Department’s shifting guidance also doesn’t appear to have an impact on ESG investing, Gotbaum said. Whether or not the DOL encourages economically targeted investing or proxy activity, the decision “has always been and will always be up to the fiduciaries themselves.”

James Cole II, a lawyer with Groom Law Group in Washington, echoed Gotbaum, telling Bloomberg Law the impact of the changes in guidance “remains to be seen.”

The guidance is arguably more restrictive than prior guidance under the Obama administration and technically reaffirms the “all thing things being equal test” for investments introduced by the Bush administration, Cole said.

Christopher B. Burnham, former Connecticut state treasurer and former undersecretary general at the United Nations, praised the new guidance.

“It’s a commitment by the DOL to promote honesty and transparency in our pensions,” Burnham, who is now president of the Institute for Pension Fund Integrity, told Bloomberg Law.

Investors shouldn’t “play politics with other people’s money,” he said.

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The Financial Standard: US project to end pension politics

An American non-profit – led by a former state treasurer – is demanding pension plan managers stop putting politics before prudent investment.

The Institute for Pension Fund Integrity (IPFI) says if a fund manager is investing pension money based on political reasons and not purely on the risk or return, they are weakening the fund and undermining its integrity.

“Public pension fund managers have a fiduciary responsibility to their beneficiaries to make rational decisions based on risk and return, not politics. As the former state treasurer of Connecticut and sole fiduciary of the Connecticut pension system, I know the importance of keeping politics out of fiduciary decisions. I started IPFI to help inform beneficiaries and policy leaders, and to bring this issue to the forefront,” former Connecticut state treasurer Christopher B. Burnham said.

Only 30% of the 6276 pension funds across US are adequately funded using optimistic actuarial assumptions, according to the institute. No pension fund is more than 63% funded, if conservative actuarial assumptions are used. States alone have $6 trillion in unfunded liabilities – not counting the thousands of county and city pensions.

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Barron’s: Why Pensions and Politics Don’t Mix

While the U.S. stock market has produced one of the longest and strongest bull runs in its history over the past nine years, the financial condition of many of the country’s 6,000 or so state and municipal pension funds has deteriorated. Some are in bad shape.

Yet, even as these pension funds grapple with a huge deficit, $1.4 trillion as of 2016, the drumbeat for exiting investments in certain industries—oil, coal, arms, even car companies—goes on. Should pensions, particularly underfunded ones, make investment decisions based on political litmus tests rather than follow the standard fiduciary duty to make the best returns possible with the least risk?

There’s a strong argument to ignore the calls for divestment, which limit a fund’s diversification. Sectors go up and down in the business cycle, and a portfolio permanently eschewing a key sector—like energy, for example—will likely suffer underperformance through the added risk of loss of diversification across the market’s sectors.

Despite big fluctuations in oil prices over the years, the energy sector of the Standard & Poor’s 500 index is up 159% to date since the end of 1999, third-best out of 11 sectors and similar to the 158% rise in crude prices. Technology? Up 43% over that period, second to last. In late 2016, the California Public Employees’ Retirement System (Calpers) said its exit from some tobacco stocks in 2000 reduced portfolio returns by $3 billion from 2001 to 2014. Diversification pays.

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IPFI Applauds US Department of Labor: Fiduciary Responsibility First Priority for Fund Managers

The United States Department of Labor’s Employee Benefits Security Administration released a Field Assistance Bulletin (FAB) this week outlining their stance on the responsibilities of private investment managers. The FAB states that, “ERISA fiduciaries must always put first the economic interests of the plan in providing retirement benefits.” IPFI could not agree more. The responsibility of the investment manager is to generate stable returns and reduce risk, not operate against the tide of the economy. The Department of Labor also states that, “fiduciaries of ERISA-covered plans must avoid too readily treating ESG issues as being economically relevant to any particular investment choice.” This point strikes that the core of the Institute for Pension Fund Integrity, speaking to the core principles of data driven investment and the avoidance of politically driven investment strategies.

Further in the FAB, the Department of Labor states that fiduciaries cannot use the funds under management to pay for exorbitant costs related to sponsoring proxy fights on environmental or social issues. In essence, the federal government is stating that it is the responsibility of the fiduciary to manage funds wisely and avoid irresponsible actions. IFPI could not agree more; there are certain actions that are unacceptable for fund managers, with the use of client funds for the sake of social investing being one of them. While ESG investments have proven to be profitable and responsible in certain cases, deviating from financially responsible investments for the sake of ESG investment is irresponsible when pensioners only have one option.

At IPFI, we advocate first for the health and financial security of pension funds, regardless of their public or private nature. IPFI also seeks the responsible management of contribution-based funds, as responsible management promotes high return on investment and stability in pension accounts. The United States Department of Labor has made clear through this FAB that fund managers are held to a high standard, both in the private and public sector.

Chief Investment Officer: New Institute Challenges ESG-Minded Divestment Movement

A new pension-focused institute has been created that seeks to challenge nationwide efforts to convince public pension funds to divest from companies for environmental, social, or governance (ESG) reasons.

The Institute for Pension Fund Integrity says many of the stocks that the ESG movement shuns generate good returns, so dumping them will harm pension portfolio returns. The group said it wants to ensure that state and local leaders are held responsible for their choices in public pension investment, and “to keep plan managers from placing politics ahead of prudent investment.”

It advocates four core principles in public pension management: adherence to fiduciary responsibility; balanced economic, social, and governance factor investments; long-term pension fund return; and data-driven investment. The institute’s president is Christopher Burnham, chairman of strategic advisory services firm Cambridge Global Advisors, a former Connecticut state treasurer, and a former undersecretary general at the United Nations under President George W. Bush.

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Institutional Investor: New Pensions Group Says Forget About Climate Change

Pension funds should focus solely on getting the best investment returns and ignore issues such as climate change and other political issues, says a new group founded by a former Connecticut state treasurer.

In a white paper released today, the new group, the Institute for Pension Fund Integrity, argued that prioritizing anything but returns is a breach of fiduciary duty. Christopher Burnham, the institute’s founder and president and a former United Nations undersecretary, told Institutional Investor that politics have “no role to play” in managing retirement funds.

“We take a market or realistic approach to unfunded liabilities in state and municipal pension systems,” he said.

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