CalPERS Cuts Investment Ties with Iran, Sudan

(May 18, 2011) — The $236 billion California Public Employees’ Retirement System (CalPERS) has asserted that it plans to shed the rest of its Sudan and Iran-linked holdings.

The move is in response to strong sanctions adopted in 2010 by the federal government, the United Nations, and European Union, which started the withdrawal of several large multi-national oil and energy companies from Iran, which has been identified as a state sponsor of terrorism, as well as Sudan, which has been cited for genocidal acts.

In 2006, the Legislature passed laws instructing the state’s pensions — CalPERS and California State Teachers’ Retirement System (CalSTRS) — to withdraw their money from Sudan and Iran a year later. Instead of ordering immediate divestment, however, the laws provided the pensions with additional time to give them greater ability to follow through on their fiduciary duty.

Following the legislation, CalPERS adopted an initial Sudan divestment policy in 2006. While the nation’s largest public fund once had $2 billion invested in 47 companies in the two countries, CalPERS now owns shares valued at approximately $160 million in only eight companies that fall within the parameters of the State’s Iran and Sudan divestment acts, according to a statement on the fund’s website.

“The cost of continuing to hold the stock of these eight companies is greater than the value of divesting them,” said Rob Feckner, CalPERS Board President. “Consistent with our fiduciary duty as trustees, we’re taking this step in the best interest of the Fund.”

Investment committee chair George Diehr added: “We plan to mitigate and compensate for the cost of executing trades by implementing sales over time rather than precipitously. We also will use the sales of these company shares to adjust an allocation overweight in our Global Equity portfolio, and avoid the continuing engagement costs.”

Other funds have faced mounting pressure to exit holdings of Iran. In August 2010, Massachusetts Governor Deval Patrick signed legislation that will force the state pension fund to divest from companies supporting Iran’s oil industry. According to the legislation, the Massachusetts Pension Reserve Investment Board (MassPRIM) – which manages roughly $42 billion on behalf of public entities in the Bay State – has one year in which to hire an independent research firm to conduct a study of its holdings and divest from any companies that invest in the Iranian oil industry. The MassPRIM board must also update the list of prohibited companies on a quarterly basis, the law stipulates.