LACERS Must Stand Up Against Divestment Pressure

As the new year begins, fiduciaries must remain vigilant against misguided abuse of our nation’s pensions. Those in charge of California’s retirees have a duty to manage the Los Angeles City Employees’ Retirement System (LACERS) with the sole objective of increasing returns. Forced divestment and politically-motivated financial decisions have been shown to compromise that outcome. Yet Los Angeles City Councilman Bob Blumenfield has irresponsibly ignored past financial research by using LACERS to forward a flawed and uninformed plan to revise his fellow citizens’ retirement funds.

IPFIUSA’s groundbreaking report last April on the faults of restrictive and politically motivated investment strategies seems to never have made it to Councilman Blumenfield’s desk. The report details how ESG-style funds in the style of the Councilman’s suggestion consistently underperform other more responsibly researched and managed funds, if only for a basic explanation: “an investor who is picking stocks from a limited pool of choices will be outperformed by one who is picking stocks from a broader pool.” It is not only a simple and fundamental investment theory that Councilman Blumenfield is ignoring but also carefully compiled data.

The same report details how the S&P 500 — an all-encompassing index fund thought to mimic the general economy — beat the oldest ESG fund in “seven of the past nine calendar years.”  For one five-year period, the S&P beat the ESG fund by more than 0.75%. This margin is significant to any informed investor, and it can especially make a difference to those who rely on pensions for a liveable income after retirement.

LACERS deserves a City Council that prioritizes public pensions over the private political beliefs of its members. Councilman Blumenfield suggests creating watchlists and labeling certain companies (with a demonstrated history of profitable returns that strengthen pensions) as “uncooperative.” This does nothing but harm to the future of Los Angeles. Further, there is no evidence that such a practice alters the behavior of entities deemed politically unfavorable. We are concerned for those who can’t afford to waste their retirement on simply proving a point, and we urge Councilman Blumenfield to leave politics aside to protect the pensions of Los Angeles’ public employees.