Bill would force pension funds to sell off investments with ties to Iran

San Diego Business Journal, June 25, 2007 by Andy Killion

Assemblyman Joel Anderson, R-El Cajon, has proposed legislation to sever the state,s two employee pension funds from companies that do business with Iran.

AB 221--approved by the Assembly 75-0--would pull money invested by the California Public Employees' Retirement System and California State Teachers' Retirement System from foreign-owned companies involved in Iran's energy, oil, gas or defense sectors, as well as any sector known to contribute to terrorism.

Foreign-owned companies with business interests in Iran unrelated to these Joel Anderson sectors, such as Hyundai, would not be affected by the legislation.

The bill, supported by Gov. Arnold Schwarzenegger, is expected to reach the Senate by September.

Anderson said the bill applies only to foreign-owned companies, since it is already illegal for U.S.-based companies to do business in Iran.

The two funds manage more than $410 billion in assets.

According to Anderson's Web site, $29 billion is invested by the two funds, known as CalPERS and CalSTRS, in companies "with ties to foreign states that sponsor terrorists."

Anderson said billions of those dollars are invested in companies that do business in Iran.

CalPERS spokesman Clark McKinley said that the retirement system is opposed to the divestment bill on business-related grounds.

"We have a constitutional mandate to generate the highest returns for the fund ... you've got to follow that," said McKinley. "When you divest, for whatever reason, that could subvert that fiduciary duty; that trust role to get those returns."

McKinley said CalPERS estimates that it could end up selling off as much as $2 billion in shares--a decision that could generate expenses totaling $25 million.

"We're concerned about terrorism ... but it's easier said than done," McKinley added.

CalPERS is under a similar mandate to divest shares of companies supporting the Sudanese government and, in the '90s, divested shares of tobacco companies.

McKinley said that the tobacco divestment decision stemmed from litigation in the industry that made the companies a risky investment.

"You're talking about multinationals outside of the United States, and most of their operations are everywhere but Iran," said McKinley. "They might have a finger or a toe there, but they're getting good investment returns."

Anderson's spokesman, Chip Englander, said that one company that could be divested is Potal, a French drilling operation in the oil sector.

A story in a national daily business newspaper also cited Honda Motor Co. of Japan, British-Dutch oil company Royal Dutch Shell and French telecom company Alcatel as candidates for divestment.

According to the article, Florida became the first state to sign an Iran divestment bill into law in early June.

Anderson doesn't know how much impact this will have on the Iranian economy, but said that there are many other reasons to support the bill.

"Many back the bill because it's the socially responsible thing to do," said Anderson in an e-mail. The legislation, he said, is modeled after a 1986 South African divestment bill used to fight the apartheid government in power at the time.

"Others don't think investments that lead to funding terrorists who kill Americans are the right places to put our tax dollars," adding that Iran's economy is teetering on collapse, making it a risky place to invest.

"Every foreign-owned company doing business in Iran is at risk of having its assets nationalized, bombed, or seized through sanctions.

"Common sense tells us these are incredibly risky investments," said Anderson.

Send finance news to Andy Killion via e-mail at akillion@sdbj, com. He can be reached at (858) 277-6359, ext. 3106.