Public pensions are in deep trouble across the country, but you might not know it to look at some of their investing decisions. Despite the need to earn the highest possible returns on their investments for their stakeholders, a number of public pension funds are using their investment power to support pet political causes.We’ve beat this drum before, and now Texas comptroller Susan Combs is joining the chorus in a WSJ op-ed:
When officials with fiduciary responsibilities for public funds shift their focus to non-financial “values” such as the environment or gun control, at best it is at the expense of these responsibilities; at worst it is a clear conflict of interest. It is a particularly risky lapse given the dismal state of many public pension funds. The Government Accounting Standards Board is changing its reporting requirements in 2014 to require increased disclosure of the financial strength of these funds. These requirements make it even more incumbent on public managers to focus on the financial needs of workers’ retirements. […]If public officials don’t approve of the way a company manages its business, or even the area of business it is in, they can dump the investment. But trying to change those companies—in terms of where and how they legally operate—offers public officials too many opportunities to grandstand. They may try to coerce legal businesses—say, to disinvest in oil exploration—for reasons that have nothing to do with investment value. It may be good politics, but it does nothing for the pension funds, and can easily depress the value of their existing investments.
Yes. Reading stories like these, it’s hard to shake the feeling that on some important level, public pension managers are ostriching in the face of the crisis before them. With projections for investment returns for many funds already unrealistically high in many states, the last thing future retirees need is managers playing politics with their nest eggs.