Wisconsin State Investment Board, Madison, relaxed its investment guidelines to allow its external emerging-markets managers to invest in countries in their portfolio benchmarks rated "not free" under Freedom House rankings, said Vicki Hearing, public information officer. This will allow the managers to continue investing in Russia, despite its being downgraded to "not free" status from "partly free," she said. The $70 billion fund uses the rankings — an annual assessment of the state of political rights and civil liberties in all countries — to screen investments.
On average, the fund's emerging markets equity managers have 1.5% of their portfolios invested in Russia, and its emerging markets fixed-income and high-yield managers 7%, she said. In emerging markets equity, T. Rowe Price manages $399 million for the fund; Boston, $279 million; and Grantham, Mayo, Van Otterloo $132 million. In emerging markets fixed income, GMO manages $337 million and Deutsche Morgan Grenfell, $145 million. In emerging markets high yield, Salomon Brothers manages $361 million, and Capital Guardian, $338 million.
The guidelines had prohibited new investments in countries rated not free, although managers did not have to divest countries that fell into that rating, she said, adding that investments are sold based on financial considerations, not ratings. The board voted not to follow the Freedom House ratings "until it determines if Freedom House is the right guide for us to use," she said. "We can't expect the managers to be compared to their benchmarks if we limit their investments in the benchmarks."
The board could make a decision about switching to another screening process in February or March, she added.