CalPERS ignores Legislature on Iran

Feb. 25, 2010

By KATY GRIMES

Nearly three years ago, California legislators passed AB221 requiring the sale of investments in Iran. In a hearing yesterday at the Capitol, California Public Employee Retirement System (CalPERS) representatives made clear to legislators that they had not done so yet, nor did they believe it was required of them to do so according to their constitutional fiduciary responsibility to members.

After the United States identified Iran as a state sponsor of terrorism, legislators created AB221, authored by Assemblyman Joel Anderson, R-La Mesa, to tighten economic sanctions against Iran and other terrorist-supporting countries.

While CalPERS representatives insisted they are fully committed to enact requirements of AB221 and have approached the Iran act in good faith, Joe Dear, the CalPERS Chief Investment Officer, and Ann Simpson, portfolio global funds manager Ann Simpson, in testimony before the committee hearing of Senate and Assembly Public Employees and Public Retirement committees concluded that their constitutional fiduciary duty required that they follow the law and that the costs of getting rid of all investments outweighed total removal of Iranian investments.

Mark Carrel of the Jewish Public Affairs Committee of California, testified that CalPERS and CalSTRS (California State Teachers’ Retirement System) not only opposed AB221 which passed 75-0 in 2007, but have ignored implementation by diversifying and removing funds from Iran. Simpson replied shortly after, “CalPERS does not invest in Iran but invests in the entire region, specifically in Israel.”

Testimony from Carrel at the hearing included the issue of Iran now having the capabilities of developing nuclear weapons, “most likely to be used against Israel” according to Carrel. Carrel offered Florida as an example of a state that pulled $1.15 billion out of Iran.

Carrel said that he is frustrated by CalPERS and CalSTRS and questioned why they feel it is acceptable to ignore AB221. According to Carrel’s testimony, CalSTRS has 23 investments and CalPERS has 24 in Iran. They were supposed to have begun removal of investments with 90 days of bill passage and have not, according to Carrel. By allowing the retirement funds to remain in Iran, “they continue to support terrorism,” stated Carrel.

Simpson explained that CalPERS transaction costs were $6 million to $23 million, and every five years could expect $127 million in losses if they completely divested from oil companies in region. When asked why they are not going to divest the rest of companies from Iran, Simpson stated that CalPERS had sent letters and faxes to individual companies, but had not heard back. “We took no action,” said Simpson.

Visibly frustrated, Sen. Lou Correa, D-Santa Ana, asked his colleagues, “What do we need to do to make these companies understand that we mean business?” after Simpson told committee that they haven’t received responses from many companies in region and haven’t done anything about it.

At one point, Dear said the investment strategy of the CalPERS is to own stock in all of the publicly traded companies in the world, in order to reduce risk, despite the restrictions in AB221.

Dear and Simpson told legislators that they’d go along with AB 221 if the state made up losses in the pension fund.

Conversely, CalSTRS has sold $21 million worth of stock in three South Korean companies for a $7 million loss, has restricted additional purchases of stock in other companies, and is still reviewing the status of more companies in the region.

With CalPERS insisting that its fiduciary responsibility to members trumps the AB221 requirements prohibiting the pension fund investments in Iran unless California financially makes up the difference, Anderson, the bill’s author said to Dear, “I’m deeply concerned that you have completely thumbed your nose at the Legislature.”