PRESS RELEASE: SEC Commission Guidance on Proxy Voting is Encouraging

FOR IMMEDIATE RELEASE

August 21, 2019

SEC Commission Guidance on Proxy Voting is Encouraging

The Institute for Pension Fund Integrity commends the SEC for moving towards greater clarity on the proxy voting requirements and fiduciary responsibility for institutional investors. However, more is needed.

Arlington, VA – The Securities and Exchange Commission (SEC) has been reviewing the role of proxy advisory firms and the processes surrounding proxy voting for more than a year. The action taken by the Commission at today’s meeting to issue formal guidance on the proxy voting responsibilities of investment advisers is an important first step toward providing clarity essential to fiduciaries. This official guidance is a welcomed first step in a process that will add necessary transparency and accountability.

Proxy advisory firms have an outsized influence on public pensions because fiduciaries feel an inherent mandate requiring them to vote every single proxy. Two proxy advisory firms, Institutional Investor Services (ISS) and Glass Lewis, control 97% of the proxy services market despite apparent conflicts of interest and lack of regulatory oversight. By reducing the requirement of institutional investors to vote every single proxy, proxy advisory firms and institutional investors, such as public pension funds, will be able to focus on shareholder resolutions that directly impact shareholder value, thereby benefiting all our public employees and retirees.

In response to this guidance, Institute for Pension Fund Integrity (IPFI) President, Christopher Burnham, commented, “Firm adherence to fiduciary responsibility was evident at today’s meeting, and it’s clear that it was the overarching factor in developing the Commission’s guidance.” Burnham continued, “the SEC is moving in the right direction on the proxy voting issue, and I’m encouraged by today’s comments from the Commission that we’ll see more action by the SEC through a rule change to provide further transparency in the opaque proxy advisory environment.”

IPFI continues to fight for strict adherence to fiduciary responsibility and to keep politics out of the management of public pension funds. Considering the latest research showing the underperformance of public pension funds, now more than ever, pensions need to focus on fiduciary responsibility and proxy voting that will enhance investment returns. Read more about the intersection of public pensions and proxy voting at www.ipfiusa.org.

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The Institute for Pension Fund Integrity seeks to ensure that local, state and federal leaders are held responsible for their choices in investment, led not by political ideation and opinion but instead by fiduciary responsibility. IPFI is a non-partisan, non-profit organization based out of Arlington, Virginia, and spearheaded by former Connecticut State Treasurer and former Undersecretary General of the United Nations, Christopher B. Burnham.

Opinion/Letter: Divestment vote was doubly wrong – Christopher Burnham in the Charlottesville Daily Progress

This letter to the Editor originally appeared in the Charlottesville The Daily Progress on August 13, 2019

Charlottesville voted to divest from fossil fuels and national defense companies. The City Council of Charlottesville seeks to disassociate itself from companies that fuel our cars, heat our schools and businesses, or support our armed forces. As a Virginian and retired Marine Corps officer, I find this outrageous.

What kind of cars do City Council members drive? What energy is used to heat their homes? It doesn’t matter, because the vast majority of energy produced in Virginia relies on nuclear, gas and coal. In fact, gas and coal account for 62% of energy production in Virginia. Over 100,000 Virginians are traditional energy or energy efficiency workers. Additionally, about 50,000 workers are involved in the motor vehicles industry — vehicles, including hybrids, primarily powered by fossil fuels.

The city treasurer recently said that divestment will have minimal effect on the city’s financial stability. So if divestment is harmless, then is this an empty political gesture or stunt?

This divestment insults every soldier, sailor, airman and Marine who relies on Virginian-made defense technology to preserve, protect, and defend our country. It also insults the men and women of our state laboring in the energy field to heat (or cool) our homes, get our kids to school, and keep our country running.

Divestment is also a terrible fiduciary decision. National defense companies have been among the top-performing stocks in the past decade, including Virginia-based General Dynamics and Northrop Grumman, also headquartered in Virginia. But then, this has a “minimal effect.”

The Charlottesville City Council, rather than making empty political gestures, should determine how to make city government faster, better, and cheaper. It was a self-serving vote, and a hypocritical one to boot.

Christopher Burnham

References:

https://www.eia.gov/state/?sid=VA

https://static1.squarespace.com/static/5a98cf80ec4eb7c5cd928c61/t/5c0153c84ae2379b482d04df/1543590859106/USEER2018_States.pdf

https://www.cbs19news.com/content/news/City-Council-votes-to-divest-from-fossil-fuels-and-weapons-510793761.html

https://en.wikipedia.org/wiki/General_Dynamics

https://en.wikipedia.org/wiki/Northrop_Grumman

Public Pension Performance: Comparing Pension Investments to Passive Index Portfolios

With many states facing tough budgetary decisions, in part because pensions are requiring greater contributions, the Institute for Pension Fund Integrity decided to compare pensions through another metric besides the funding ratio. How well a pension is funded is important for determining the overall health of the system, but if the investments are not performing well, the system will continue struggling. Using a passive investment strategy as the guiding marker, IPFI has ranked pension systems across all fifty states based on their performance.

The findings were released in a new paper, Public Pension Performance: Comparing Pension Investments to Passive Index Portfolios.

IPFI drew data the Vanguard Total Stock Market Index and Vanguard Total Bond Market Index to build two passive index investment portfolios for comparison: one portfolio was 60% stocks, 40% bonds, and one was 50% stocks and 50% bonds. After thorough analysis, IPFI identified several key points:

  • Only five of the 52 pension funds that were analyzed outperformed the 60/40 passive index investment portfolio.
  • Only one state had both strong pension performance and is well funded. South Dakota is 100.1% funded and was 71 basis points stronger than the 60/40 index portfolio.
  • California was the 10th worst performing pension system, 116 basis points less than the 60/40 portfolio. However, California is almost 69% funded. This is important because the state is known for their activist investment strategies and has lost about $7.8 billion since 2000 due to various divestments based on political and social investment strategies.
  • Wisconsin, which has the best funded pension system in the country, performed 72 basis points worse than the 60/40 portfolio. This proves that fund performance is not the only needed metric to ensure a healthy pension. Wisconsin has reliably contributed the actuarially determined amounts to the system, helping its funded status.
  • The politicization of pension fund investments does have an impact on overall fund performance, and if a pension fund can’t beat a basic balanced passive investment strategy, it is time to reevaluate the current investment strategies and leaders in charge.

In developing this strategy and in response to the subsequent analysis, IPFI President and former Connecticut Treasurer Christopher Burnham said, “If a fund can’t outperform a basic balanced passive investment strategy, it is time to fire the fiduciaries and outsource the management of the pension fund to a simple, no cost, passive mutual fund.” He continued saying, “We hope this information will be used to provoke a discussion of the failure of the way some state fiduciaries and administrators manage our precious retirement and taxpayer dollars.”

IPFI is dedicated to bringing greater transparency and accountability to public pensions, fighting to keep politics out of the management of pension investments. This research, along with other quantitative and qualitative analysis that the organization provides, seeks to provide retirees, taxpayers, and policymakers with the data needed to ensure that pensions will continue providing for the hardworking Americans who dedicated their careers to the public sector.

Read IPFI’s latest paper, Public Pension Performance: Comparing Pension Investments to Passive Index Portfolios

 

 

 

 

 

 

 

PRESS RELEASE: IPFI Urges Pittsburgh Pension Board to Stay Strong Against Politicization of Fund

FOR IMMEDIATE  RELEASE

July 1, 2019           

IPFI Urges Pittsburgh Pension Board to Stay Strong Against Politicization of Fund

 

As the Pittsburgh Comprehensive Municipal Pension Trust Fund faces calls to divest from gun manufacturers and other companies, board members should continue prioritizing the secure retirement of its retirees.

Arlington, VA – On the heels of Pittsburgh Mayor Bill Peduto submitting a plan to divest the Comprehensive Municipal Public Trust Fund (CMPTF) from gun and ammunition, fossil fuel, and private prison companies, Chairman of the Board Ralph Sicuro has reaffirmed the fund’s commitment to fiduciary responsibility. IPFI applauds and supports Chairman Sicuro’s courage in the face of those seeking to put politics before fiduciary responsibility.

Mayor Peduto outlined his intentions in a recent letter to the seven member board of the CMPTF, which holds $463 million to fund the retirement of the city’s teachers, firefighters, and employees. Some members of the board have already expressed deep concern over the mayor’s proposal. City Spokesman Tim McNulty stated that it is unclear how divestment would impact the fund’s performance. As a result, the board has convened an exploratory committee to determine the potential harm of divesting. Echoing this decision, Chairman Sicuro affirmed that the foremost goal of the fund was not activism, but instead, is adhering to fiduciary responsibility to grow the fund.

IPFI is committed to advocating for a secure future for all public pension funds, and commends the board’s efforts to maintain fiduciary responsibility. Mayor Peduto must recognize that the board exists as the steward for thousands of employees’ retirement and pensions. The city of Pittsburgh faces a net pension liability of $918.4 million. The board must consider the costs of divesting from value-adding assets, and understand the negative impact that this move would have on the pension fund performance.

What Mayor Peduto is pushing for is not classic environmental, social, and governance (ESG) investing; it is political investing plain and simple. ESG investing focuses on best practices and stewardship in all corporations, not just in those that are a political fad today. In doing so he is squarely putting politics, and his political career, ahead of the secure retirement of all current and retired public employees in Pittsburgh. Fiduciary responsibility always trumps politics.

IPFI President Christopher Burnham recently said, “Prioritizing a political agenda instead of fund performance is a breach of fiduciary responsibility and violates the special trust and confidence which hard-working pensioners have placed in their mayor.” He continued, “The board should strongly reject this plan, and continue prioritizing the primary objective of growing the fund for a secure retirement for all. Pittsburgh public servants and Pittsburgh taxpayers should insist that politics and political advancement should never come before fiduciary duty.”

For more on IPFI, proxy advisory firms, and other issues facing public pensions check out our website at www.ipfiusa.org. A recording of the discussion is also available at www.ipfiusa.org/webcast

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The Institute for Pension Fund Integrity seeks to ensure that local, state and federal leaders are held responsible for their choices in investment, led not by political ideation and opinion but instead by fiduciary responsibility. IPFI is a non-partisan, non-profit organization based out of Arlington, Virginia, and spearheaded by former Connecticut State Treasurer and former Undersecretary General of the United Nations, Christopher B. Burnham.

COMMENTARY: It’s Proxy Season And Here’s Why That Matters For Public Pensions

This op-ed originally appeared in Forbes on June 13, 2019.

This is the time of year when publicly traded companies host their annual shareholder meetings. During these meetings the shareholders vote their shares on various issues impacting the company. The company’s proxy statement will include shareholder resolutions on everything from executive pay to proposals that impact how the company operates. This is a critical part of keeping management focused on increasing shareholder value (i.e., growing the company).

This can be a complicated cycle for public pension plans that typically have thousands of issues to vote on for hundreds of companies. Most pension plans hire outside consultants to advise on how to vote the various issues confronting shareholders, and in some cases, public plans assign their vote directly to the proxy advisory firms.

I disagree with this for two reasons: first, proxy voting firms are not fiduciaries and are not required to be registered with the Financial Industry Regulatory Authority (FINRA); second, they are not managing the money—typically pension funds hire money managers to do that.

As Connecticut State Treasurer in 1995, I made sure that all our asset managers only collected fees when they out-performed their benchmark. That is the quintessential “alignment of interest”. The problem with proxy advisory firms is that they have no alignment of interest. They may make a recommendation of how to vote based on issues that have a political impact but not a shareholder value impact. No matter what—they still get paid their fee. A far better way would be to do what we did in Connecticut—let the money managers whom you have chosen based on a myriad of factors, including their performance, vote the proxy shares—and pay them their fees only when they outperform the benchmark. Now that is an incentive for money managers to force corporate managers to stay focused on strengthening and growing the company.

Politicians may argue that good politics makes for good shareholder value, but unfortunately, this is a violation of fiduciary responsibility. Make politics in the legislatures, but please leave our precious retirement funds free from your personal political opinion.

The two largest proxy advisory firms, ISS headquartered in Rockville, MD, and Glass Lewis, headquartered in San Francisco, CA, control 97% of the advisory market. Among other services, they develop proxy proposals, analyze proxy proposals, and provide clients with recommendations on how to vote all other proposals. These two companies recommend proxy proposals, provide suggestions to clients about how to vote on those proposals, and in some cases, vote their clients proxy. In other words, they have the ability to control the entire proxy process which has led them to have a duopoly on how institutional investors vote.

This concentrated power has prompted the SEC to take action and begin reviewing the current rules governing proxy firms. This started with a panel discussion in November, 2018 to hear from the various stakeholders that would be affected. Since then, and since the official comment period opened, the SEC has shared more than 250 unique comments on the issue of proxy advisory firms, with a majority in favor of reform.

But how should the SEC deal with this monopolistic concentration? First and foremost, those in charge of our public pension plans (which is not the SEC) should let money managers do their job—and managing money in my mind also means managing the proxy votes. Let those who manage your money also vote your shares in the best interest of all shareholders.

However, if plan sponsors want to continue to use third party firms, then these firms should be held to the same fiduciary standard to which money managers are held—and as a first step they should have to register with FINRA, and the SEC should assign fiduciary responsibility to them for their fiduciary advice.

Our public pensions funds are facing an almost unfathomable unfunded liability burden that will impact the retirement security of our teachers, firefighters, and public servants, including me, very shortly. Proxy advisory firms are making recommendations on decisions that impact company performance. They should be making those decisions in the best interest of improving returns and not based on the political whims of the day or upcoming elections. Applying fiduciary responsibility to proxy advisory firms would be an important first step.

COMMENTARY: State Pension Funds Shouldn’t be Captive to Politics

This op-ed originally appeared in The Buffalo News on June 09, 2019.

The politicization of pensions continues plaguing our state. In a misguided effort to fight climate change, State Sen. Liz Krueger introduced Senate bill 2126, the Fossil Fuel Divestment Act, earlier this year.

This prompted an open letter from New York Comptroller Thomas DiNapoli, urging Krueger to reconsider this legislation on the basis that it limits his fiduciary responsibility to manage the state pension funds for the sole interest of its beneficiaries. DiNapoli is right – and the Legislature shouldn’t limit his ability to do his job.

As a lifelong New Yorker and retired officer of the Fire Department of New York, I believe in empowering fiduciaries to make the best decisions for the funds without the influence of politics. By cutting investments that have generated more than $4 billion over the past decade, the Senate bill would force DiNapoli to abdicate his fiduciary responsibility, which stands independent of political and social opinions.

During an April 2019 hearing on the bill, New York State Common Retirement Fund’s interim chief investment officer, Anastasia Titarchuk, explained the benefits of the fund having a strong diversification strategy – which also includes $10 billion in its sustainable investment program. She called divestment a “blunt instrument that does not actually address the greatest [climate change] risks … ”

New York job opportunities will also suffer if the state divests. In 2018, the fossil fuel sector grew by 4.9% and is projected to grow another 3% in 2019. New York could see economic gains between $2.6 and $5 billion from liquefied natural gas exports alone.

Beyond divestment posing a threat to New York’s workforce and retirees, it hasn’t been proved that it fights climate change. An issue brief from the Institute for Pension Fund Integrity (for which I am an advisory board member) explores this topic, showing that divestment doesn’t necessarily force a company to change its actions.

Pension funds have begun to realize that the costs of divestment are not worth the political statement. Recently, New York City police and fire pension funds opted against participating in Mayor Bill de Blasio and City Comptroller Scott Stringer’s divestment plans. And CalPERS voted to oppose legislation which would require divestment from private prison companies.

New York must recognize the futility of divestment and its ineffectiveness for urging change. It only hurts retirees and local economies. Fellow pensioners, retirees and taxpayers must demand separation between political opinions and public pension management. Politicians should not jeopardize our hard-earned retirement and a healthy economy because of a political agenda.

Richard Brower is a former vice chairman of the New York City Fire Department’s Pension Fund.

PRESS RELEASE: Pension Funds Should Not be Used as Leverage for Social Movements

FOR IMMEDIATE  RELEASE

May 8, 2019           

Pension Funds Should Not be Used as Leverage for Social Movements

 

The Institute for Pension Fund Integrity hosted a morning breakfast discussion on public pensions, proxy advisory firms, and the ESG investing with all participants ultimately agreeing that “pension funds should not be used as leverage for social movements.”

WASHINGTON, D.C. – This morning at the National Press Club, a panel of experts joined the Institute for Pension Fund Integrity (IPFI) to discuss the relationship between public pensions, proxy advisory firms, and Environmental, Social, and Governance (ESG) principles. The rise in ESG investing and popular scrutiny around what types of industries public pensions profit from has sparked much debate. The tendency of proxy advisory firms to favor proposals with strong ESG components despite their pattern for lower returns raises concerns. IPFI welcomed Congressman Sean Duffy (R-WI-8) as keynote speaker and a panel of experts including Jason Perez (CalPERS), Jeff Mahoney (Council of Institutional Investors), and Dr. Wayne Winegarden (Pacific Research Institute).

Setting the scene, IPFI President Christopher Burnham emphasized the need for a strict adherence to fiduciary responsibility for all investors and those providing investment advice, including proxy advisory firms. Underfunded public pensions cannot afford to sacrifice potential earnings in favor of advancing a political agenda, and the proxy advisory firms that public pensions rely on for proxy voting guidance are actively pushing factors that may ultimately harm company performance, and therefore returns.

Congressman Sean Duffy was then welcomed to the podium to frame the issue from a legislative standpoint. Rep. Duffy had previously sponsored the Corporate Governance Reform and Transparency Act and has been engaging in a bipartisan effort to pass this bill. This legislation, while not as interesting as healthcare or tax reform, is necessary to “bring about more responsibility, accountability and transparency for proxy advisory firms,” said the Congressman.

The panel discussion then followed, discussing everything from the impact of ESG investing to the role of proxy advisory firms. When asked the impact of divestment movements in California, California Public Employees’ Retirement System (CalPERS) board member Jason Perez cited external influences as the primary driving force for divestment from companies with proven substantial returns. He asserted that “public pensions should not be a lever” to further social movements, which all panelists strongly agreed with.

While there was some disagreement regarding the question of applying fiduciary responsibility to proxy advisory firms, the panelists agreed that greater disclosures and transparency would benefit all parties involved. Dr. Wayne Winegarden, Senior Fellow in Business and Economics at the Pacific Research Institute, also argued that it might not be necessary to always vote the proxy, which would be a stark change from today’s understanding of SEC guidelines. This was just one of the lively discussion topics that the panelists covered with all panelists presenting unique view points.

For more on IPFI, proxy advisory firms, and other issues facing public pensions, check out our website at www.ipfiusa.org. A recording of the discussion is also available at www.ipfiusa.org/webcast

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The Institute for Pension Fund Integrity seeks to ensure that local, state and federal leaders are held responsible for their choices in investment, led not by political ideation and opinion but instead by fiduciary responsibility. IPFI is a non-partisan, non-profit organization based out of Arlington, Virginia, and spearheaded by former Connecticut State Treasurer and former Undersecretary General of the United Nations, Christopher B. Burnham.

Public Pensions, Proxy Advisory Firms, And ESG Investing: Join IPFI for a breakfast discussion – May 8, 2019

You’re invited! Join IPFI for a breakfast discussion on Wednesday, May 8, 2019 at 8:15 am. RSVP Required.

America’s public pensions are faced with increasing pressure from outside stakeholders to influence their investment strategies. This pressure includes everything from urging pensions to divest from various holdings, to the outsized influence that proxy advisory firms leverage to push environment, social and governance (ESG) initiatives. Join experts from across the public, academic, and nonprofit sectors to discuss these issues and the latest in public pension policy.

Featured Speakers:

  • Congressman Sean Duffy – Sponsor of the Corporate Governance Reform and Transparency Act
  • Jason Perez – CalPERS Board Member
  • Dr. Wayne Winegarden – Sr. Fellow in Business & Economics, Pacific Research Institute
  • Christopher Burnham – Former Connecticut State Treasurer, IPFI President

Wednesday, May 8, 2019, 8:15 am – 10:15 am

National Press Club – First Amendment Lounge

529 14th St NW, Washington, DC 20045

RSVP REQUIRED

Please RSVP by Friday, May 3, 2019

 

A recording of this event is available here: http://ipfiusa.org/webcast/

IPFI Issue Brief: ESG and the Proxy Process – What Does the Research Say?

With environmental, social, and governance (ESG) investing on the rise and calls for public pensions to divest from fossil fuels, private prisons, gun manufacturers, and others, IPFI compiled the latest research to determine the efficacy of ESG investing for public pensions.

Public pensions across the country are facing almost $6 trillion in unfunded liabilities. Any strategy that adds value to pension fund investments is worth examining. However, if the strategy doesn’t produce stronger returns, it should be dropped. In fact, evidence shows that ESG funds fall short of traditional fund performance, prioritizing ethical, social, or even political concerns ahead of optimizing returns for investors.

Beyond the challenges of ESG investing, the issue brief details the role that proxy advisory firms are now playing in the ESG investment ecosystem, which is relevant especially in light of the Securities and Exchange Commission’s review of the proxy process. The issue brief summarizes four key points:

  • Years of experience show ESG funds fall short
  • Frictional costs and values screens limit fund performance
  • Exclusions and divestments are particularly harmful to returns
  • The role of proxy advisors in the ESG ecosystem deserves scrutiny

Read the full Issue Brief: ESG and the Proxy Process – What Does The Research Say

IPFI Opposes NY Fossil Fuel Divestment Act

Institute for Pension Fund Integrity Opposes New York Senate Bill 2126, the Fossil Fuel Divestment Act

 

The Institute for Pension Fund Integrity has authored a letter of opposition to New York State Senator Liz Krueger and New York Assembly Assistant Speaker Felix Ortiz to express the organization’s position against the proposed Fossil Fuel Divestment Act. IPFI’s opposition supports New York Comptroller Thomas DiNapoli who, in an unprecedented action, sent a letter to the legislature opposing the proposed divestment. IPFI stands firmly against politically motivated divestment, and urges public pension funds to adhere strictly to their fiduciary responsibility to maximize returns for plan beneficiaries.

Read the full letter here.

Download: IPFI Opposes NY Fossil Fuel Divestment Act