Public Pensions Want to Divest From Russia. But Can They?
“The problem is the Russian stock market hasn’t opened this week,” CalSTRS CIO Chris Ailman said.
After a week of rushing to enumerate their exposure to Russian assets, public pension funds have started to share their plans to divest from the country.
But ongoing closures of the Moscow Stock Exchange, as well as the illiquidity of certain private assets, have made it difficult, if not impossible, for these major funds to divest immediately.
Still, facing calls from state governors, funds like the California Public Employees’ Retirement System and Pennsylvania Public School Employees’ Retirement System have revealed the size of their investments, while announcing halts on new commitments to Russian investments.
On Thursday evening, following a call from Governor Tom Wolf, PSERS voted to divest its holdings in Russia and Belarus, which total between $270 million and $300 million. The investment accounts for less than 0.5 percent of the portfolio.
“That being said, any amount of investment in these two countries now poses an unacceptable risk, in my opinion,” said Board Chairman Chris Santa Maria, at the fund’s emergency board meeting on Thursday. PSERS planned to meet Friday to discuss the governor’s letter.
Meanwhile, on Tuesday, California Governor Gavin Newsom called on CalPERS, the California State Teachers’ Retirement System, and the University of California’s investment office to divest from their combined $1.5 billion in Russian holdings.
At a Thursday board meeting, CIO Chris Ailman shared how CalSTRS is planning to address its share of the holdings. According to Ailman, as of last week, CalSTRS had $171.5 million in Russia exposure. He estimated that the number is now under $100 million, as prices have dropped significantly.
“A lot of our managers sold down the position as an active manager should and would do,” Ailman said during Thursday’s meeting. “Many of them even sold things at distressed prices as of last week. The problem is the Russian stock market hasn’t opened this week.”
As such, the remainder of the holdings can’t be sold off. “We will treat those as frozen assets and wait to see how we can get our money out,” Ailman said. CalSTRS is in the process of formulating its response to Newsom.
CalPERS sent its response to the governor Thursday afternoon, revealing that it holds approximately $420 million in public equities and $345 million in illiquid real estate assets in Russia. The fund has halted new investments and is assessing its real estate holdings. The closures that Ailman noted have also hindered the ability of CalPERS to liquify its positions.
Meanwhile, California’s smaller funds have also started to consider how they will tackle their allocations to Russia.
The Los Angeles County Employees Retirement Association, for instance, has less than $184 million, or 0.25 percent of its $74 billion fund, invested in Russian securities, according to CIO Jonathan Grabel. He plans to share more details on the investments online ahead of the pension fund’s Wednesday meeting.
San Jose’s retirement funds likewise have “quite small” exposures to Russian holdings — 28 basis points for its Police & Fire fund, and 40 basis points for the Federated pension fund, all through co-mingled funds with high-conviction emerging markets managers. CIO Prabhu Palani said via email that the fund is closely monitoring the situation and told his board members the same at a Thursday meeting.
Following urging from New York City Comptroller Brad Lander, the NYC Police Pension Fund voted to divest from its $42.2 million in Russian securities.
Elsewhere in New York, state comptroller Thomas DiNapoli said the state would no longer invest in Russian assets, and that it is completing a review of its some $110.8 million in direct and co-mingled public equity investments in the country.