Oklahoma Firefighters Pension & Retirement System, Oklahoma City, has voted to take advantage of a loophole in a controversial state law requiring it to cut ties with firms deemed to be hostile to the oil and gas industry.
At a meeting on Dec. 15, the board of the $3.3 billion pension fund voted to exercise an exemption permitted under the law that would prevent it from having to divest $8 million in fixed income securities with J.P. Morgan Chase, Wells Fargo and Bank of America, three of the six firms that Oklahoma has blacklisted for allegedly discriminating against oil and gas companies.
"The board voted to take the fiduciary exemption on fixed-income securities since directing the current divestment and preventing the future purchase of these securities would be inconsistent with its fiduciary responsibility," said Chase Rankin, the pension fund's executive director, in a statement.
Rankin explained that while the estimated divestment cost to liquidate the current bond holdings was "de minimis," there were significant future opportunity costs if it were not allowed to purchase the securities of the blacklisted firms going forward.
The pension fund earlier this year, however, did drop State Street, one of the blacklisted firms, as its custodian bank and index fund provider, replacing it with Northern Trust. It also terminated its real estate investments with J.P. Morgan.
The pension fund reviewed the potential cost of divestment of its equity and fixed-income holdings as well as the opportunity cost of preventing future purchases of these securities, Rankin said in the statement.
Based on that review, the board decided to update its investment policy to prevent the future purchase of equity securities of the six blacklisted firms. It also instructed its equity investment managers to divest current holdings in these firms in an expedited manner, Rankin said.
"While we did take one small exception in the fixed income portion of the portfolio, all other areas of the portfolio are in compliance with the Energy Discrimination Elimination Act," he said, referring to the Oklahoma law that was implemented in 2022 to punish firms for factoring environmental, social and governance issues into their investment decision-making.
Oklahoma Firefighters is the second pension fund to exercise a fiduciary exemption from the divestment mandate. In August, the $10.3 billion Oklahoma Public Employees Retirement System voted in favor of an exemption to avoid having to divest anything at all.
OPERS argued that it would cost $10 million to terminate contracts with BlackRock and State Street, which together manage roughly 60% of the OPERS' assets. Its decision to claim the fiduciary exemption was "legally consistent and in compliance with the Energy Discrimination Elimination Act," it said in a 16-page letter sent to Oklahoma Treasurer Todd Russ and other members of the Oklahoma State Pension Commission.
Russ has taken an increasingly aggressive stance against Oklahoma's pension funds, sending OPERs, for example, a scathing 17-page letter rebuking it for its decision to take the fiduciary exemption.
"The board's actions were in opposition to the letter and spirit of EDEA," he said.
