NYCERS' protracted consideration of tobacco-related investments offers a case study in why public pension fund trustees should not try to steer the local economy with the retirement assets they manage.
It's costly to the pension fund.
Pension fund assets should be invested for participants.
The New York City Employees' Retirement System seems to have looked at the economic and political implications on whether to divest its tobacco investments, causing a long delay in its decision on the issue.
A memo by Chief Investment Officer Donna Anderson to then-Deputy Comptroller Jon Lukomnik was included in a packet of materials for NYCERS trustees. Her memo noted, among other information, that the tobacco industry is one of the city's largest taxpayers and that it creates jobs, not only at tobacco companies but also in advertising and other economic sectors.
Michael Musuraca, a trustee, defended the board's delay in acting on the issue, because the issue is politically charged. Although there was no discussion of the economic implications of tobacco at trustees' meetings, trustees and staff have left an ambiguity in their actions.
The NYCERS fund, meantime, saw the value of its tobacco-related holdings shrink by an estimated $50 million while it pondered the issue.
Trustees should not consider a business' contribution to the local economy in their decision on whether to invest in a particular industry or company. Investments should be considered on their merits alone, in keeping with the appropriate risk of the pension fund.
Trustees cannot satisfy fiduciary objectives while catering to political interests.
