One state pension fund is dumping French stocks while another might be forced to do so.
Both are reactions to the anti-American sentiment in France, a country that has refused to support the war in Iraq.
The $4.8 billion Montana Board of Investments, Helena, voted 5-4 March 13 to sell stocks of French companies it holds in its internally managed portfolios. The board oversees the state's nine public employee pension funds.
Board officials fear France's stance on the U.S.-led war on Iraq will cause a backlash by U.S. consumers, said Carroll South, executive director.
Montana's external managers will not be required to sell shares, and the decision does not include bonds in French companies.
In Kansas, the state House of Representatives passed a bill March 25 that would prohibit the $8 billion Kansas Public Employees' Retirement System, Topeka, from investing its assets in any French company or any firm with a subsidiary or affiliate operating in France. The bill is part of the House Appropriations Bill for fiscal year 2004, which starts in July.
It was introduced in the state Senate on March 26 and sent to the Senate Ways & Means Committee, where it awaits action.
Robert Woodard, chief investment officer of Kansas PERS, said he was "looking at the proposal," but at this point it wasn't clear if the fund would be forced to divest French stocks it already owns or just avoid any stocks of French companies in the future.
But legal experts issued words of caution on such actions.
Ian Lanoff, a partner in the Groom Law Group, Washington, said selling French stocks because you don't like France could put the funds on shaky ground in terms of fiduciary responsibility.
"The first question a (fund manager) would have to ask is, `Is there any financial basis for selling those stocks?"' he said. "They would have to get advice from an investment expert that there was a financial or investment basis for selling French stocks, such as there is too much risk."
The second question would be if the French stocks could be replaced with an equivalent investment. "You would need an investment expert to tell you what they could be replaced with to get an equivalent return," Mr. Lanoff said. If the pension fund's staff can't do that, "if they act in disregard of investment criteria, then it's not in line with fiduciary rules and a lawyer like me couldn't defend them," he added.
Said Ian Kopelman, national practice chair of the employee benefit and executive compensation group of Piper Rudnick, Chicago: "Selling for a non-financial reason is no reason to sell a stock," under ERISA fiduciary rules. "This is the reverse of the social investment concept - pulling out of an investment to make a political statement. I don't see that reason permitted under fiduciary rules," he added. "If someone said, `there is a terrific company but it's French so we're selling it,' you're keying up for a lawsuit."