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U.S. Pension Funds Scramble to Figure Out What to Do With Russian Investments

Colorado has already divested from its Russian investments, while CalPERS, CalSTRS and others mull their options.
By Anna Gordon


The pressure to divest from Russian investments is everywhere. Both from an environmental, social and governance perspective and a financially prudent one, Russian assets are extremely high risk right now. But many of the United States’ largest pension funds still have assets in the country, making them vulnerable to even further financial downturn as the war with Ukraine wages on.

Moscow’s stock market is already amidst one of its worst crashes in history. The Russian Trade Index has plunged 23.6% between February 22 and February 25. It is expected to fall even lower throughout today as Russian banks have been cut off from SWIFT, the independent organization that facilitates international payments by linking more than 11,000 banks and other financial players in over 200 countries and territories.

The United States’ largest pension funds, the California Public Employees’ Retirement System and California State Teachers’ Retirement System both have funds invested in Russian assets. A spokesperson for CalPERS told Reuters that the fund has $900 million in exposure to Russia. CalSTRS has approximately $800 million in Russian exposure, according to Reuters.

Colorado’s public pension fund had $7.2 million invested in a Russian state-owned bank called Sberbank. The new federal sanctions forced the fund to take its money out of the bank almost immediately.

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In New Jersey, New York and Illinois, lawmakers are making similar calls to divest from Russian investments. New York state Sen. Elijah Reichlin-Melnick proposed a law that would force the state’s pension fund, New York Common Retirement, to divest from any companies or organizations that have business ties with Russia.

New Jersey state Sen. Paul Sarlo introduced a similar bill. New Jersey’s pension fund currently has $226.6 million invested in Russian equities. It also has $21.4 million invested in Belarus, a Russia ally that is currently holding a referendum about whether to allow Russian nuclear weapons on its soil.

Illinois House Minority Leader Jim Durkin is also trying to introduce a bill that would require all state-owned pension assets to be divested from Russian companies. Other major pension funds, like Pennsylvania Public School Employees’ Retirement System and Minnesota State Board of Investment, are currently trying to calculate their level of exposure to the Russian market, according to the Wall Street Journal. 

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Home > News > Risk > Warning: Tossing Russian Banks From the International System Could Backfire
Risk

Warning: Tossing Russian Banks From the International System Could Backfire

Credit Suisse says removing the lenders from SWIFT may lead to problems similar to the 2008 and 2020 panics.
By Larry Light


The decision to boot Russian lenders from the global bank messaging system as punishment for its invasion of Ukraine is a very bad idea that could boomerang and hurt the West, Credit Suisse admonishes.

“Exclusions from SWIFT will lead to missed payments and giant overdrafts similar to the missed payments and giant overdrafts that we saw in March 2020,” wrote Credit Suisse strategist Zoltan Pozsar, in a research note.

This will lead to the Federal Reserve and other central banks reversing their plans to feed liquidity into the system via bond purchases, Pozsar predicted. No one else will be able to clean up the mess, he argued.

The U.S., the European Union and Canada agreed over the weekend to oust Russian banks from the interbank system, called SWIFT, a remarkable move that will end Russia’s connection from much of the world’s financial system.

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Concern is rife on Wall Street that such an extraordinary step—reserved in the past for only Iran—will backfire on the West. S&P 500 futures, which had climbed Friday as the market bounced back from earlier worries, were down 2.2% Sunday as a result.

SWIFT, which stands for the Society for Worldwide Interbank Financial Telecommunication, is an independent organization that facilitates international payments by linking more than 11,000 banks and other financial players in over 200 countries and territories.

“Exclusions from SWIFT will lead to missed payments everywhere,” Pozsar wrote. Two years ago, “the virus froze the flow of goods and services that led to missed payments.” Aside from the financial panic at the outset of the pandemic, the world ran into a similar problem in 2008, when Lehman Brothers collapsed, he said. 

 Pozsar wrote: “Banks’ inability to make payments due to their exclusion from SWIFT is the same as Lehman’s inability to make payments due to its clearing bank’s unwillingness to send payments on its behalf. History does not repeat itself, but it rhymes.”

To Pozsar, commercial banks’ current excess reserves and reverse repurchase agreement facilities won’t be sufficient to deal with the problem, and central banks will be forced to step in. And the upshot from that is that the Fed, which has been tapering its bond-buying program with the view of ending it in a few months, might actually need to about-face and expand the purchases again, Pozsar said.

“The consequence of excluding banks from SWIFT is real,” he added, “and so is the need for central banks to reactivate daily U.S. dollar funds supplying operations.”

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