Why divestment is a lousy deal for the retirees who are funding it.
Reader comment on: Let States Divest From Iran
in response to reader comment: Iran Divestment
Submitted by Jeffrey L. Glasgow (United States), Sep 1, 2007 18:36
What I think your have shown proves my point. If there are a number of stocks on the SEC list that are good investments and terror free, why should the free market make them purchasable. In fact, if they are so very good, a prudent investor would be required, by his fiduciary duty to his beneficiaries, to invest in them if they provide the best return. What mandated divestment does is to create a market for "terror free" funds that are not able compete with generally available funds, absent coercion by a mandated divestment statute. This is absolutely proven by the centerpiece of every single piece of divestment legislation--the abrogation of the fiduciary rule. Ohio's divestment bill, HB 151 contains Section 137.08 which immunizes fund managers from suits against them for breach of fiduciary duty if the divest in accordance with the statute "in good faith." It continues and indemnifies these same managers for similar losses, and, adding insult to injury, takes the indemnification payments from the fund itself. Senator Obama's legislation is sufficiently similar as to be indisinguishable. These immunity and indemnity provisions are a complete admission that divestment will harm fund beneficiaries.
It is intersting that you identify the Roosevelt Fund as an example of why divestment is a good thing. Adam Sheer, from the Roosevelt fund, seems to have a marketing position by testifying in Ohio, and I suspect other states, in favor of mandated divestment. Likewise, the Conflict Securities Advisory Group is travelling from state to state testifying in favor of divestment. It should not surprise you that the Conflict Securities Advisory Group is a business that maintains a database of "scrutinized' corporations and will, of course offer its services to identify tainted stocks. While it provided its services for free during the Ohio debate, the payoff will, I am sure, come later. In Missouri, where the tiny Missouri Investment Trust is touted as an analogue to multi-billion dollar pension systems, it should come as no surprise that Conflict Security Advisory Group has a contract with the fund's advisor, the service fee for which is to be included in the advisor's fee to the trust. (and, of course, the beneficiaries)
I am awaiting your explanation of why this is such a good deal for me and millions of retirees.
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Jewish Policy Center replies:
Jeff - Here's the rub. If other state pension funds and patriotic Americans begin to divest from Iran, it becomes the pension funds' fiduciary responsibility to divest before the stocks lose their value. As long as the divestment movement continues to gain steam (and it will, whether I write about it or not), the stocks will go down. But there is still time. So, make sure your pension fund stays ahead of the curve.
Also, try to remember that this is a very small list of stocks. There are so many other excellent equities out there. Why go with the ones that work with terrorist states?
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