Across the nation politicians are naïvely calling for state pensions to dump their Russian investments to punish the country for its invasion of Ukraine. Since state pensions have in recent years agreed to let Wall Street fund managers keep secret their investment holdings, states don’t even know the Russian assets they hold.
Yesterday, state Attorney General Dave Yost publicly called upon Ohio’s five public employee retirement funds to divest themselves of Russian financial holdings to further punish the country over its invasion of Ukraine. Yost naively directed the five state funds to identify Russian equities and divest as quickly as possible.
Good luck with that.
Also yesterday, Rhode Island General Treasurer Seth Magaziner and the State Investment Commission voted to pull state pension assets from Russia. Magaziner’s office claims the market value of its Russian investments prior to the invasion was no more than $30 million. Don’t count on it. Magaziner is almost certainly not including Russian assets held in secretive private funds offshore.
A forensic investigation I recently conducted on behalf of the Ohio Retired Teachers Association, The High Cost of Secrecy, revealed that the State Teachers Retirement System of Ohio (STRS) had long abandoned transparency, choosing instead to collaborate with Wall Street firms and others to eviscerate Ohio public records laws and avoid accountability to stakeholders. (Three forensic investigations I undertook of the Employee Retirement System of Rhode Island detailed similar transparency concerns.)
At STRS and Ohio’s other four state pensions, investment firms are no longer required to fully disclose to pension boards or staff their investment holdings. AG Yost claims the pensions have a fiduciary responsibility to their members to divest.
“The pension systems invest billions of dollars of assets that belong to public employee retirees… “That money should not be used to help keep an economy afloat that is sponsoring a war machine.”
Further, says Yost, divestment is necessary to protect retired Ohioans, since Russia’s increasing isolation could lead to the devaluation of its assets.
“Widespread bankruptcies seem a likely outcome — an outcome in which our Ohio public pension systems and their members should not share.”
As a result of Wall Street secrecy schemes agreed to by Ohio’s pensions, state pension officials cannot fulfill their fiduciary duty to diligently safeguard pension assets by divesting from Russian—as Yost has requested—even if they wanted to.
Further, as I pointed out in The High Cost of Secrecy since the pensions themselves do not know the full extent of their investment holdings—including but not limited to Russian assets—full disclosure of such investment information to the public is impossible. State pension stakeholders cannot understand the investment program, as well as evaluate whether pension fiduciaries are prudently performing their duties.
By the way, even if Ohio’s five public pensions could identity their Russia holdings—which they can’t—chances are a distress sale at this time would amount to a near total loss. Like the Beanie Baby investment scandal at Ohio Bureau of Workers’ Compensation in 2005, and the Panda Power $500 million complete loss at STRS last year, Ohio continues to show that exotic, costly and opaque investments don’t belong in funds providing retirement security to millions of government workers.
Likewise, Rhode Island former Treasurer Gina Raimondo’s disastrous hedge fund gamble that cost the pension nearly $1 billion should have convinced stakeholders to demand a return of full transparency at the pension. Sadly, the massive losses did not.