FUNDS HOOKED ON TOBACCO DESPITE STATES' COURT FIGHT;THEY ALSO OPPOSE RJR, PHILLIP MORRIS SPINOFFS
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • KKR lifts out 3 to focus on clean energy infrastructure
      Richard Johnson
      Appian Capital Advisory adds global investor relations head
      Alternative investment funds faced liquidity squeezes in COVID-19 crisis and 2019
      CI Financial launches global real estate, infrastructure joint venture
    • Callan brings on 2 executives
      Hub International agrees to buy Plan Sponsor Consultants
      Aon names public markets solution leader
      Deloitte to acquire Sydney-based consulting firm Rice Warner
    • Alternative investment funds faced liquidity squeezes in COVID-19 crisis and 2019
      Jerome Powell, chairman of the Federal Reserve, listens during a Senate Banking Committee hearing in Washington on Dec. 1, 2020
      Fed saw some time before taper conditions met – minutes
      International Monetary Fund and World Bank spring meetings signage at the IMF headquarters in Washington
      IMF upgrades global growth forecast, warns of diverging recoveries
      A cashier standing behind a protective barrier assists a customer at a Peter Harris Clothes store in Latham, N.Y.
      Job growth tops 900,000 in March as hiring broadens
    • Pentegra launches pooled employer plan
      Teresa Hassara
      Ascensus taps MassMutual alum as new FuturePlan president
      Economic Group Pension Services scoops up third-party administrator
      OregonSaves gathers $100 million in assets
    • Shoppers wear protective masks while visiting an Apple Inc. store at George Street in Sydney, Australia, on June 24, 2020.
      Apple backs SEC mandate on climate disclosure
      Emissions rise from the Kentucky Utilities Co. Ghent generating station in Ghent, Ky.
      Investors, businesses call for ambitious emissions goals
      Signage for Temasek Holdings Pte. is displayed during a news conference following the company's annual review in Singapore
      Temasek, BlackRock partner to launch carbon-cutting funds
      New York state pension fund limits oil sands investments
    • Ken Griffin
      Ken Griffin donates $5 million to give Miami students internet
      New book culls institutional wisdom from podcast series
      Fearless Girl
      SSGA’s Fearless Girl statue now shattering glass ceiling
      Tangen video
      Norges chief dons chef’s hat to boost employees’ spirits
    • Hedge funds post best first-quarter return since 2000
      Jason Kephart
      Managers see good times ahead in 2021
      Jev Mehmet, CEO of Brevan Howard's Coremont unit
      Brevan Howard runs $50 billion unit like BlackRock’s Aladdin
      A sign outside a Credit Suisse Group bank branch in Murten, Switzerland
      Credit Suisse, Nomura slump as banks tally Archegos damage
    • Mirova adds proxy voting and engagement leader
      S&P Global holds fast on New Jersey’s long-term debt rating
      New York University revamps options for 5 DC plans
    • Mirova adds proxy voting and engagement leader
      Erick Bronner
      Palladium Equity Partners picks new head of fundraising and investor relations
      The Euro sculpture illuminated outside the Eurotower, the former headquarters of the European Central Bank in Frankfurt on Dec. 15, 2020
      European manager AUM rises to record $12.7 trillion in 2020
      Lydia Wu
      Barings chooses head of Greater China distribution
    • Kansas City Employees adopts global strategy with small-cap swing
      Michael C. Viteri
      Arizona appoints new CIO
      A £10 sterling bank note with a pound coin and a ballpoint pen, with focus on the word 'pension.'
      U.K. defined benefit plans’ surplus surges in March
      Columbia University professor Takatoshi Ito
      GPIF treads water as ESG picks up pace
    • Mirova adds proxy voting and engagement leader
      Erick Bronner
      Palladium Equity Partners picks new head of fundraising and investor relations
      Callan brings on 2 executives
      Michael C. Viteri
      Arizona appoints new CIO
    • Bills of euro, dollar and pound currencies, among others
      Ardian closes latest buyout fund at $8.8 billion
      Hand typing on stationary iPhone at an office reception desk
      Private equity’s taste for tech spurs $80 billion deal spree
      Vista Equity promotes 2 to leadership roles on 2 funds
      Azimut takes minority stake in HighPost
    • CalSTRS indutrial property
      Investors hungry for industrial properties
      Tim Wang
      GLP names co-president of logistics, industrial real estate for China
      Frank Forster
      StepStone Real Estate adds managing director for Europe
      Christine Iacoucci
      BentallGreenOak promotes from within to fill Canadian CIO role
    • Andy Schreiner
      New PEPs targeting firms without retirement plans
      Jackie Walorski
      Contribution catch-up for caregivers gaining favor
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
    • Corporate pension contributions
      Eddy Awards 2021
      COVID-19: One year in
      Charging Bull, sometimes referred to as the Wall Street Bull or the Bowling Green Bull, a bronze sculpture that stands on Broadway just north of Bowling Green in the Financial District of New York City
      Top-performing managers Q4 2020
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Insurer Phoenix chooses Barings for real estate debt allocation
      Texas Employees discloses $246 million in commitments
      New York University revamps options for 5 DC plans
      Riverside County adds BlackRock bond fund, drops Templeton fund
    • Insurer Phoenix chooses Barings for real estate debt allocation
      Texas Employees discloses $246 million in commitments
      New York University revamps options for 5 DC plans
      Riverside County adds BlackRock bond fund, drops Templeton fund
    • Passive Investment Management Services
      Active Extended Global Credit Manager Search
      Actuarial Services
      Investment Management Services
    • Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
      Stable value retains edge over money market funds
      Taiwan Semiconductor’s No. 1 in the emerging markets book
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • CalPERS cartoon
      Urgency underscores CalPERS' search for a CIO
      Multiemployer plans cartoon
      Money — but no fixes — for multiemployer plans
      Vaccination cartoon
      Rallying to meet the ongoing COVID-19 challenge
      Tesla cartoon
      Don’t confuse wealth creation with retirement saving
    • Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
      COVID-19 Makes LP Portfolio Management More Important Than Ever
      China: the outlook is bright for longer-term investors
      Finding Differentiation in Securitized Assets
    • Greg Shea and Steven Kindred
      Commentary: The solution for yield-seeking allocators may be hiding in plain sight
      Jim Park
      Commentary: Asian Americans, Pacific Islanders face ‘bamboo ceiling’ in money management
      Jared Gross
      Commentary: Anchors and allocations – breaking the grip of 60/40
      Peter Marber
      Commentary: Is it time for an emerging markets rally?
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • P&I Content Solutions
      Research for Institutional Money Management
      P&I Content Solutions
      Top questions for institutional investors
      Sponsored Content By Newton Investment Management
      Growth and Innovation in Emerging Markets
      P&I Content Solutions
      In Challenging Markets, Systematic Global Macro Strategies Could Hold Opportunity
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:23
      The passive fixed-income glut
      watch video
      1:38
      Is it time for DC plans to embrace private equity?
      watch video
      5:39
      The coronavirus pandemic: One year later
      watch video
      0:45
      Private funds weathered 2020 turmoil
    • Understanding the PEP Evolution
      Divest or engage?
      New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Innovations in DC: Helping supercharge retirement outcomes
    • POLL: The Biden infrastructure plan
      POLL: Retirement income solutions
      POLL: Working after the pandemic
      POLL: The year ahead for the 1,000 largest U.S. retirement funds
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • Managed account adoption stalls in 2020
      U.S. bonds have worst quarterly return since 1981
  • Events
    • Conferences
    • Webinars
    • DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Understanding the PEP Evolution
      Divest or engage?
      New Outlook on Income: A Framework for Evaluating DC Retirement Income Solutions
      Innovations in DC: Helping supercharge retirement outcomes
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. Print
April 15, 1996 01:00 AM

FUNDS HOOKED ON TOBACCO DESPITE STATES' COURT FIGHT;THEY ALSO OPPOSE RJR, PHILLIP MORRIS SPINOFFS

Vineeta Anand
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    Some big state pension funds continue to invest in tobacco manufacturers, even as their attorneys general are suing the same companies for reimbursements of state-paid medical bills from tobacco-related health problems.

    What's more, some pension funds have ignored recommendations by the states' chief lawyers to sell their tobacco company shares, buy no additional shares, or use their shareholder power to urge tobacco companies to adopt federal guidelines on limiting their marketing and advertising to teen-agers.

    The tobacco investment policies of pension funds are in the limelight again because of the April 17 annual meeting of RJR Nabisco Holdings Corp. and the April 25 annual meeting of Philip Morris Cos. Inc., the world's largest tobacco company.

    At RJR, many of these large pension funds plan to support management in a proxy war by dissident shareholder Bennett LeBow to unseat the current board and replace it with a slate that would press for a spinoff of RJR's tobacco operation within six months.

    A similar spinoff resolution is on the ballot at Philip Morris. Many large pension funds, which two years ago pressed the company for a spinoff, now say the issue is moot because the company's stock has performed considerably better since then.

    Ironically, some state pension systems, such as the California Public Employees' Retirement System, also are responsible for paying medical bills incurred by their pensioners.

    "These products are killing the plan participants. There's no obligation for pension managers to have these represented in their pension portfolio," commented Brad S. Krevor, executive director of the Tobacco Divestment Project, a program run by the Tobacco Control Resource Center Inc., Boston, a non-profit educational foundation that aims to influence public policy on tobacco.

    In the seven states that have sued cigarette manufacturers for reimbursements of tobacco-related Medicaid claims, at least five state pension funds still invest in tobacco company stocks:

    In Mississippi, Frank Ready, executive director of the $9 billion-plus Mississippi Employees' Retirement System, Jackson, said the pension fund views investments in tobacco companies purely from an investment perspective. "So have we sold stock because our attorney general has brought lawsuits against the tobacco companies? The answer is no."

    Mr. Ready would not say how many tobacco shares the fund holds.

    In Louisiana, James Wood, executive director of the $4.1 billion Louisiana State Employees' Retirement System, Baton Rouge, said the board has not questioned investments in tobacco companies, despite the attorney general's lawsuit. It has 213,000 shares of Philip Morris.

    The $28 billion Minnesota State Board of Investment, St. Paul, three years ago abandoned its policy not to invest in "sin stocks," companies that earned more than half of their revenues from the sale of tobacco or alcohol. The pension fund now has "probably less than 1%" of its total assets in tobacco, according to Howard Bicker, executive director. Minutes from a board meeting last December show the fund has no intention of curtailing investments in tobacco companies, believing "the potential for adverse claims against tobacco companies (has) already been factored into the current market price of these stocks."

    The two large Massachusetts state funds - the $7 billion Pension Reserves Investment Management Board and the $8.5 billion Massachusetts State Teachers' & Employees Retirement System - collectively own around $150 million in tobacco stocks.

    The $52 billion Florida State Board of Administration has 3.9 million shares in Philip Morris, 1.2 million each in RJR and American Brands and 1.3 million in UST Inc. Lan Janecek, chief of equities, said, "If there's an edict politically (to divest from tobacco stocks) then I've got to follow it." But he admits it would be tough to follow such a mandate because some of them are very sound investments. Nonetheless, he couldn't quite explain why the fund owns RJR, a laggard stock. "I don't question my external managers' individual holdings, " he said.

    In Maryland, where the state plans to file a similar lawsuit, Attorney General Joseph H. Curran Jr. almost two years ago urged Louis L. Goldstein, the state comptroller and chairman of the $20 billion-plus Maryland State Retirement Systems, to sell off its then-$112.4 million in tobacco stocks.

    The state retirement system, however, responded with a "thank you, but no thanks," Michael Enright, a spokesman for Mr. Curran said. Mr. Goldstein's office did not return repeated calls seeking comment.

    And in fact, so far only one large pension fund, the $50 billion New York State Teachers' Retirement System, may be cutting back its exposure to tobacco stocks because of their increased riskiness, George H. Philip, executive director, said.

    "It won't be no tobacco, but we could short-weight the sector," Mr. Philip said. The fund's trustees will decide whether to adopt such a strategy at a meeting April 25. If a policy is approved, it will be based purely on economics - not the morality of investing in tobacco, he said.

    The fund's existing tobacco policy discourages companies from marketing their products to teen-agers and encourages spinoffs, he said. The fund holds about 933,000 shares of RJR Nabisco and about 3 million shares of Philip Morris in indexed portfolios.

    Ironically, its sister fund, the $75 billion New York State & Local Retirement Systems, virtually doubled its holdings in RJR over the same period to 840,000 shares by year-end 1995. Last month, New York State Comptroller H. Carl McCall said the system planned to halt buying additional shares in tobacco companies through outside managed active portfolios. The system has $160 million of its actively managed portfolio in tobacco stocks. The lion's share, however, is in indexed portfolios that are unaffected by Mr. McCall's announcement.

    The fund owned 4.9 million shares in Philip Morris at year end, a tad less than the 5.1 million shares it held at the beginning of 1995, according to CDA Investment Technologies Inc., Rockville, Md.

    Some funds that invest in tobacco companies are shareholder activists at those companies.

    Minnesota, for example, voted for all socially motivated shareholder proposals presented last year to tobacco companies and supported a spinoff of RJR's and Philip Morris' tobacco operations. But this year, the fund's board has voted against the upcoming spinoff proposal at RJR and Philip Morris, Mr. Bicker said.

    Minnesota also backed a shareholder resolution at Albertson's Inc. last fall, asking the grocery store chain to act to prevent teen-agers from buying cigarettes in its stores. The proposal never appeared on the ballot, however, because the company conceded to the request, Mr. Bicker said.

    And the fund plans to co-sponsor more of these tobacco-related proposals in next year's annual meeting season.

    In Massachusetts, Treasurer Joseph D. Malone is "looking very closely" at Attorney General Scott Harshbarger's proposal that the PRIM and MASTERS boards press tobacco companies in which they own shares to adopt the Food and Drug Administration's guidelines on promoting cigarettes to youth.

    Said R. Scott Henderson, general counsel to both systems: "Our inclination is to cooperate" with the attorney general's recommendation.

    Executives at the two funds are talking with outside money managers, consultants and other public pension funds on how to frame a tobacco policy that also would guide them on voting on socially motivated shareholder proposals, he said.

    An identical proposal by Florida Attorney General Bob Butterworth has met with resistance from some cabinet members who also are trustees of the $52 billion state board.

    A looser version, which may be discussed by the cabinet later this month, recommends the Florida fund support shareholder proposals asking cigarette producers to limit their marketing efforts as long as "no element of said proposal adversely affects the state's interest under the statutory investment criteria of yield, risk and diversification."

    Meanwhile, several public pension fund executives say many of their tobacco company investments are unavoidable because they're an integral part of their indexed portfolios.

    Philip Morris is in two key baskets - the Dow Jones industrial average and the Standard & Poor's 500 Stock Index. They have less of an excuse with RJR, which is generally in their actively managed portfolios. RJR, however, is in broader market benchmarks such as the Russell 1000.

    Worse still, since Philip Morris and RJR also are the nation's two largest packaged food producers, rejiggering an indexed portfolio to comply with a mandate of divesting tobacco stocks would cause the funds to lose exposure to their higher-growth food operations, said Douglas G. Cogan, deputy director of the Investor Responsibility Research Center's social issues service, Washington.

    Philip Morris "is a major growth stock. It was up 64.5% last year. If you had to take that out of the index fund," that would really hurt, said Florida's Mr. Janecek.

    In California, a state that has not yet jumped into the tobacco litigation fray, the $98 billion California Public Employees' Retirement System strongly opposes a legislative effort to get the fund to unload its tobacco holdings. The system is among Philip Morris' top 25 shareholders with 4.9 million shares, and RJR's 26th largest holder with 1.5 million shares.

    "Historically CalPERS has opposed any campaigns that would require the fund to divest itself of tobacco stocks," Brad Pacheo, a spokesman said.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    Gender diversity is improving on FTSE 350 boards
    Gender diversity is improving on FTSE 350 boards
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    Fixed income 2021
    Sponsored Content: Fixed income 2021
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Bipsync Client Stories: RMS in Action at Pensions and Superannuation Funds
    COVID-19 Makes LP Portfolio Management More Important Than Ever
    China: the outlook is bright for longer-term investors
    Finding Differentiation in Securitized Assets
    Green and sustainable bonds in emerging markets
    Portfolio Protection: One Size Fits None
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    April 5, 2021 Page One

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center