TX Gov's Iran Divestment Plan Encounters Political Headwinds

November 28, 2007 (PLANSPONSOR.com) - A plan by Texas Governor Rick Perry to have state pension funds dump their Iran-linked investments is running into strong political headwinds.

One protest against the Perry divestment effort came in the form of a letter from state Representative Vicki Truitt, chair of the House Committee on Pensions and Investments, who urged Employees Retirement System (ERS) trustees in a letter not to let “external pressures and demands” influence their investment decisions, the Austin American-Statement reported. ERS represents state workers.

The divestment program also ran into rough seas at an ERS trustees meeting this week from board members who asserted their obligation to deliver the best investment returns trumps directions from Perry or the state legislature (See  Texas Public Pension Officials Wrestle with Divestment Issue ).

ERS Trustee Craig Hester of Austin complained that the time and money spent on the divestment process is “an exercise in futility.”

“At the end of the day, it’s not going to have any impact” on the governments targeted, said Hester, president of Hester Capital Management, according to the news report. “It will be great headlines, but that’s it.”

Hester said divestment policies “are a matter of federal and national policy,” not something state pension plans should be making (See  Cover: Doing the Right Thing? ).

Meanwhile, trustee Cydney Donnell, said selling off investments in certain countries represents a precedent for demands from interest groups that the fund make investment decisions on different criteria. “We’ll get various requests forever,” said Donnell, a Texas A&M University finance professor. “We need to determine whether these will have negative consequences for our beneficiaries.”

In a September 25 letter to the pension funds, Governor Perry said as many as 400 companies could have business ties to Iran and asked the funds to develop a plan to “engage” companies about their presence in the country and sell their shares, if need be (See  TX Governor Asks Pension Funds to Divest Holdings in Iran-Linked Companies ).

Texas Attorney General Greg Abbott’s office has told both state funds that the state constitution makes clear that after state money or member contributions go into a pension system, the Legislature has no authority over the money.

Earlier this year, Perry signed legislation that requires the employee fund and the larger pension fund for public school employees to sell shares of companies that do business in Sudan (See  Texas House Approves Sudan Divestment Bill ). 

Under the Sudan divestment law, state Comptroller Susan Combs will determine by January 1 which companies do substantial parts of their business in that country and should be subject to divestment. Texas is one of at least 19 states that have passed Sudan-divestment laws.