The two asset managers — among six financial firms that have been blacklisted by Oklahoma Treasurer Todd Ross for allegedly boycotting energy companies — were supposed to have been dropped by the $11.1 billion pension fund, but a board meeting Wednesday changed their fate.
Oklahoma PERS will keep BlackRock, State Street after approving divestment exemption
The board voted in favor of a move that would exempt OPERS from having to terminate contracts with the blacklisted firms as required under the Oklahoma Energy Discrimination Elimination Act. The board opted to take a fiduciary exemption permitted under the law that allows state governmental entities to essentially ignore any requirement they determine is inconsistent with their fiduciary responsibility.
"The board determined that compliance with the divestment and contractual prohibitions of the Oklahoma Energy Discrimination Elimination Act would be inconsistent with its fiduciary responsibility," said Joseph Fox, OPERS' executive director, in an email.
The board voted in favor of the exemption 9-1 with two abstentions, Mr. Fox said. Mr. Russ, who serves on the board, was the only "no" vote. The three appointees of Oklahoma Gov. Kevin Stitt voted in favor.
Of Oklahoma's public pension funds, OPERS had the largest exposure to the blacklisted firms, with BlackRock and State Street accounting for about 65% of its portfolio, or $6.8 billion.
In preparation for a potential divestment, OPERS had issued three requests for proposals in July that would replace BlackRock and State Street as managers on mandates for index-related strategies, constrained core fixed income and U.S. large-cap enhanced indexed equity.
In a memo presented during the board meeting, OPERS staff said an investment case could not be made for transitioning the mandates, noting that the incumbent managers were more advantageous from a pricing and performance standpoint than any of the bidding firms.
"The opportunity for fee savings for the impacted mandates were uncertain, extraordinarily long-tailed for the system to derive any benefit, or simply did not exist," the memo said.
OPERS estimated that it would cost about $10 million to transition the mandates plus an additional amount in "implicit costs" that could be determined only after the transition had taken place.