THE PRICE OF GOOD INTENTIONS
August 8, 2008
Many big public pensions funds have used their investment clout to push a social agenda. But California's largest funds are learning that being virtuous doesn't always pay, says BusinessWeek.
Eight years ago, then-state treasurer Philip Angelides launched his "Double Bottom Line" initiative, espousing a philosophy of profits and social reform:
- As part of the plan, the $239 billion California Public Employees' Retirement System (CalPERS) dropped investments in countries that lacked a free press, labor unions and other hallmarks of democracy.
- CalPERS and the $162 billion California State Teachers' Retirement System (CalSTRS) also dumped tobacco stocks and plowed money into businesses and real estate that would benefit the local economy.
The strategy has been a drag on the returns of the funds, which overall have still trumped the S&P 500-stock index over the past five years:
- CalPERS, the largest pension fund in the United States, left $400 million on the table by screening out investments in China, Colombia and other countries.
- CalSTRS revealed that its cigarette ban cost it $1 billion in lost gains.
- With California home prices down nearly 40 percent in the past year and commercial properties off 15 percent, the funds' real estate bet could fizzle.
Adding to the cloud surrounding the strategy, its architect, Angelides, has been criticized for taking campaign contributions from money managers who did business with the funds -- some of whom benefited from the socially responsible shift.
Source: Christopher Palmeri, "CalPERS: The Price of Good Intentions," BusinessWeek, August 11, 2008.
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