Anti-ESG Bills Progressing in Kansas, South Carolina Legislatures

The Kansas bill, which has reached the governor, would reduce the state pension by $3.6 billion and cut its funded level by 10%, a fiscal analysis says.

Two bills are currently working their way toward becoming law in Kansas and South Carolina, aiming to prevent their respective state and local governments from incorporating environmental, social and governance principles when investing.

Kansas lawmakers have approved a bill that would prevent the state government, its pension funds and school districts from using ESG principles in investing their funds or when awarding contracts. The Protection of Pensions and Businesses Against Ideological Interference Act would require the Kansas Public Employees Retirement System to divest from financial companies that engage in “ideological boycotts or other discriminatory conduct.”

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The bill would require the state treasurer to prepare, maintain and provide to the KPERS board a list of all financial companies that engage in so-called “ideological boycotts,” which is how the bill refers to companies’ divestment based on ESG principles. The treasurer would rely on publicly available information regarding financial companies and request written verification that the company does not engage in “ideological boycotts.” A financial company that fails to provide the treasurer with written verification 31 days after receiving the request would be presumed to be engaged in an ideological boycott.

However, an analysis of the bill conducted by the Kansas Division of the Budget found that it would reduce the expected returns of the Kansas Public Employees Retirement System by 0.85%, or $3.6 billion, over the next 10 years, compared with the current investment portfolio. The analysis also estimated that it would reduce KPERS’ funded ratio by approximately 10% and lower it to the same funded level it had a decade ago.

“However, the actual long-term cost effect to KPERS would depend on the extent of the required divestment and restructuring of the investment portfolio,” the analysis stated.

The bill now heads to the desk of Kansas Governor Laura Kelly, a Democrat. Although Kelly has not publicly commented on whether she will sign the bill into law, fellow Democrats voted against the legislation in the Republican-controlled Kansas Legislature.

Meanwhile in South Carolina, the state’s House of Representatives passed the ESG Pension Protection Act. The bill requires South Carolina’s retirement system to consider only “pecuniary factors” when making investment decisions and prevents it from considering ESG factors.

The bill would also require the state’s retirement system to exercise shareholder proxy rights for shares that are owned directly or indirectly on behalf of the system. To accomplish this, the retirement system would have to manage the proxy voting in-house, hire an external proxy adviser or fully delegate the proxy voting to an external investment manager.

According to a fiscal analysis of the bill by the South Carolina Revenue and Fiscal Affairs Office, managing the proxy voting could cost the retirement system as much as $1 million if it does it in-house. It would cost the system $292,000 to hire an external proxy adviser, and delegating the proxy voting to an external investment manager would be of no cost to the retirement system. The report added that the retirement system is not sure which of the three scenarios would fulfill the requirements of the bill.

After passing the state House of Representatives, the bill was sent to the state Senate and was referred to its finance committee.

Indiana Anti-ESG Bill Could Cost State Pensions $6.7 Billion Over 10 Years

Idaho Bills Aim to Curb Public ESG Investing

Tags: anti-ESG, Bill, ESG, Kansas, Kansas Public Employees Retirement System, KPERS, Legislation, South Carolina

James Velissaris, the founder and former CIO of Infinity Q Capital Management, has been sentenced to 15 years in prison for overvaluing by more than $1 billion the assets of funds he ran. Velissaris, who took in nearly $27 million in illegal fees, pled guilty to securities fraud in November 2022.

“Velissaris wove a complex scheme to defraud investors in Infinity Q’s investment funds, and he continuously lied to investors, auditors, and even the SEC in order to hide his crimes,” U.S. Attorney Damian Williams said in a release. “Velissaris’s massive scheme was calculated and deceptive, and he now justly faces 15 years in federal prison.”

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In addition to the prison term, Velissaris was also sentenced to three years of supervised release and agreed to pay approximately $22 million in forfeiture.

According to the indictment against him, Velissaris defrauded Infinity Q’s investors by modeling the valuation of the firm’s positions in ways that were not based on the actual terms of the underlying contracts and were inconsistent with fair value. He claimed to have used the Bloomberg Valuations Service to independently calculate the fair value of these positions, which comprised hundreds of millions of dollars of the investment funds’ portfolios.

However, Velissaris’ input into the Bloomberg Valuations Service process was inconsistent with Infinity Q’s representations about the independence of the process and allowed him to mismark positions. He did this by making false entries in Bloomberg Valuations Service’s system. He secretly altered the computer code to cause the service to alter and disregard certain critical terms, resulting in report values that were artificially inflated. By manipulating OTC derivative positions, Velissaris caused anomalous and even impossible valuations.

The mismarking by Velissaris was discovered in February 2021, when Infinity Q liquidated the investment funds and sold its OTC derivative positions for hundreds of millions of dollars less than their purported market values.

Among Infinity Q’s institutional clients were the Texas Municipal Retirement System, which allocated $125 million to one of the firm’s funds, and the State Teachers Retirement System of Ohio, which reportedly had a $53 million investment in an Infinity Q hedge fund.

Gurbir Grewal, director of the SEC’s enforcement division, said last year that the $18 trillion private fund market is “attracting more and more institutional investors, including public pension funds, university endowments and charitable foundations.”