The NC pension fund holds $80 million in Russian assets. Why surrender might not be possible ::

– North Carolina State Treasurer Dale Folwell said his investment team has identified nearly $80 million in the state pension fund that goes to Russian-based entities, but did not plan to sell its assets.

The sum is just 0.07% of the state’s more than $118 billion pension plan that covers about 1 million residents.

Severing ties with the country that has come under intense scrutiny and faced heavy penalties for invading Ukraine is not as easy as some fund members might hope. This is largely because the $80 million that state workers have identified is part of a larger international fund over which the state has limited influence.

“Some of the domestic and international index funds are figuring out how to get out of these types of investments,” Folwell said.

Last week, Governor Roy Cooper urged government agencies to identify and terminate any holdings or operations that could benefit Russia. Announcing his executive order, Cooper said in a statement that the state “stands in solidarity with the people of Ukraine as they bravely fight against a tyrant to defend their country, their democracy and their freedom.”

Folwell, a Republican, agrees with the Democratic governor’s sentiments.

“What Governor Cooper said is obviously very important,” Folwell said. “But we are the ones who have the responsibility to operationalize this outside of what Governor Cooper has said about the impact of this on our pension plan.”

Why NC can’t, won’t give in

Although the sanctions have partly limited the types of companies in which US funds can invest, there are many Russian-related companies, such as US companies with operations in Russia, in which it is legal to invest. . priority for some as exposure to certain Russian related assets could be considered risky from a return perspective.

For the state, divestment from Russia is not as simple as an on/off switch.

“It’s not like you can push a button or make a phone call and identify and then immediately dispose of $80 million in assets that are probably split between index funds and currency funds,” Dan Bowling said. , a professor at Duke University School of Law. previously served as Chairman of the Pension Investment Committee of Coca-Cola Enterprises. “It’s very complicated. It’s complicated from a legal point of view and from a fiduciary point of view, even if the intention is good.

While stocks of individual companies can be bought and sold more freely, index funds owned by North Carolina and linked to Russia also include a wide range of companies outside of Russia.

Many states are preparing to sever their financial ties with Russia.

The nation’s largest pension fund, the California Public Employees Retirement System, has decided to halt new investments in Russia after receiving a request from Governor Gavin Newsom to do so.

Connecticut State Treasurer Shawn T. Wooden announced last week that he would work to divest state pension funds from Russian-owned assets.

In North Carolina, the Bank of New York Mellon Corporation is one of the principal custodians of the state pension fund and works under the direction of the North Carolina investment management team.

“When we’re managing $120 billion in the pension plan, it’s in a custodian,” Folwell said. “Our custodian is BNY Mellon. They informed us that at present all business activities have ceased regarding one of these Russian investments. We learn that some of the indices, like the European indices that invest in Russia, are looking at how they extract those Russian investments from their foreign indices.

Folwell’s office said the decision to divest was at its discretion, but noted that many Russian stocks were “stuck” due to market restrictions and lack of liquidity.

“We do not intend to divest of our Russian holdings unless directed by federal or state regulatory authorities,” his department added. “We will continue to make investment decisions based on what is in the best interests of pension plan members who teach, protect and otherwise serve. However, we will continue to monitor the situation and stand ready to reallocate investments if circumstances warrant. »

Individual actions also come under scrutiny

Every three months, the state treasurer’s office submits documents to the federal government disclosing the individual stocks it owns.

The latest such disclosure, which the U.S. Securities and Exchange Commission requires all institutional investment managers with at least $100 million in assets to file, showed that the North Carolina pension fund included nearly $19 billion worth of individual stocks from more than 1,000 companies, as of December 31.

Folwell declined to say whether his team would divest from a single company in which it owns stock. He identified three companies doing big business in Russia, including Apple, ExxonMobil and Microsoft, but suggested divestments should come from the companies themselves.

“They will make statements and decisions regarding their shareholders and their exposure to Russia,” he said.

Apple said in a statement last week that its products would no longer be sold in Russia. Microsoft said it would “suspend all new sales of Microsoft products and services in Russia.” ExxonMobil said it “would not invest in new developments in Russia” and would exit its Sakhalin-1 oil and gas project in the country.

According to the SEC filing, the North Carolina pension fund included 1.8 million shares of Exxon at the end of 2021, which was the 26th-largest holding of individual stocks in the state and valued at more than $110 million at the end of the fourth quarter.

Apple and Microsoft were by far the largest holdings. The fund held nearly $1.2 billion in Apple stock and nearly $1.1 billion in Microsoft stock. Amazon, Google parent Alphabet and Tesla were the other largest holdings with $624 million, $371 million and $363 million respectively.

Folwell said retirees should feel secure in state investments given that the pension fund is down about 4% since the start of the year. By comparison, the S&P 500 market is down 9.8% this year through Friday’s market close.

“I wish this interview didn’t happen because I wish this mass murderer didn’t invade a sovereign country,” Folwell said, referring to Russian President Vladimir Putin. “But we are where we are and we will deal with it.”

Dolores W. Simon