State Treasurer Rob McCord Monday lauded findings in Treasury’s recent report on Pennsylvania’s efforts under Act 44 of 2010 to divest from companies having certain scrutinized activities in Iran or Sudan.
“I’m pleased that we have been able to divest these securities without having the significant negative impact to the General Fund that some had feared,” said McCord. “More importantly, Pennsylvania and states that have enacted similar legislation are sending an important message that institutional investors do not want their investments being associated with genocide in Sudan or the enhancement of Iran’s oil and military capacity. This collective message is resonating, as more than 30 of the companies that we’ve been tracking have ceased their scrutinized activities in Iran or Sudan.”
During the fiscal year ending June 30, 2013, Pennsylvania’s public funds divested of holdings in 13 companies involved in prohibited activities under Act 44 in those two nations. Proceeds of the sales were more than $59 million, producing a net investment gain of $3.7 million.
Under Act 44, Pennsylvania’s public funds – the State Employees’ Retirement System, the Public School Employees’ Retirement System, the Pennsylvania Municipal Retirement System, and any fund of which the Treasurer is a custodian, referred to as the Four Funds in the report – are required to compile and publish lists of “scrutinized companies.”
The lists comprise companies identified as having prohibited business operations in Iran or Sudan described in Act 44. The Four Funds are then barred under Act 44 from acquiring securities of scrutinized companies and must divest securities of the companies that fail to take requisite action within a specified period of time.
The McCord Treasury proposed and has led the Four Funds’ collaboration compliance activities in order to reduce administrative expenses and provide a consistent methodology in determining scrutinized companies.
Treasury’s leadership saves taxpayers approximately $250,000 each year in services that would have otherwise been redundantly procured by each fund.
“This is a perfect example of how different agencies can work together in order to increase efficiency and lower the cost of government,” McCord said.
McCord credited the General Assembly for enacting legislation that gave the funds a sufficient timeframe in which to divest scrutinized securities. The Treasurer explained that the law’s provisions allow the Four Funds time to execute sales in order to take advantage of favorable market performance.
Similar legislation in other states requires divestment within as little as 6-8 months after brief periods for engagement, whereas Act 44 provides the Four Funds with a 26-month window to divest scrutinized holdings after a 180-day engagement period and one-year period of monitoring of commitments to cease scrutinized activities.
McCord noted: “We knew that providing our investment managers with a longer divestment window would allow them to maximize market opportunities and consequently minimize costs associated with divestment. That’s why we worked with the General Assembly in developing Act 44 to provide this longer period of time for the Four Funds. As a byproduct, the longer window provides additional time for companies to wind-down scrutinized operations in Iran and Sudan and avoid mandated divestment altogether. I commend the General Assembly for providing us this flexibility.”A copy of the report is available online.