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Gov.'s divestment call falters

Permanent Fund, Retirement Board chose not to divest in stocks with ties to Iran

Posted: June 17, 2012 - 12:08am

JUNEAU — The Alaska Permanent Fund Corp., state Department of Revenue and Alaska Retirement Management Board did not order the sale of stock holdings in companies that either do business in Iran or with the Iranian government after Gov. Sean Parnell called for divestment.

The decision boiled down to the mandates that each has for managing state funds — and that officials say they’re honoring, even if they’re not carrying out Parnell’s wishes.

Parnell on Jan. 31 sent letters to Permanent Fund Corp. CEO Mike Burns Revenue Commissioner Bryan Butcher and the chair of the retirement management board, asking that to the extent allowed by law, they pursue a “policy of divestiture” of state resources from companies that do business in Iran or with that country’s ruling government.

“I understand some believe free markets, rather than government policy, should drive our investment choices, but this very real threat requires action,” Parnell wrote in the letter, in which he cited nuclear concerns raised by the International Atomic Energy Agency and a hostile Iranian stance against Israel.

“No free market exists when one nation builds a nuclear arsenal while it continually and steadfastly advocates for the eradication of another entire nation, with our own not so far behind,” Parnell wrote.

Burns said the corporation’s charge is to conservatively manage the state’s money for the best return, and he said that’s what it’s doing. He stressed the part of Parnell’s letter that called for implementation of the policy “to the extent permitted by law.”

“Some places have very active social policies as part of their mandate,” he said. “We don’t.”

The Alaska Permanent Fund was established decades ago to share Alaska’s oil wealth with future generations.

The Permanent Fund Corp. invests royalties collected from oil companies doing business in the state, and invests them in areas like stocks, bonds and real estate.

It is from the realized gains that calculations are made that determine the annual dividend that most Alaskans receive.

Last year’s dividend totaled $1,174. The Permanent Fund ended March with a value of $41.5 billion, which the corporation said was the highest month-end closing value in its history.

A spokeswoman for Gov. Sean Parnell said Parnell still wants to move forward on the divestment issue.

Angela Rodell, a deputy Revenue commissioner, said Friday that officials understand Parnell’s preferences and are trying to work with his office, to do what they can to fulfill his wishes in the letter while still meeting their obligation to be “prudential financial overseers” of state funds.

The issue could come up again during a meeting of the retirement board next week; it had earlier been briefed on some of the implications of divestment, including a potential loss to the retirement fund from selling some of the holdings, she said.

Burns said corporation officials at a conference in January heard widespread talk about divestment from Iran and wondered if it could be broad enough that it could affect the market and stock value. He said there was discussion with the corporation’s board on the issue around the same time Parnell sent his letter, with a decision to contact stock managers and relay concerns — not from a political or social perspective but from an investment perspective, he said — that the stocks could be under a lot of pressure.

He said the stock managers, who are professionals hired by the corporation and not state employees, responded that they believed they had taken any such pressure into account. He said the decision for whether to pull investments was left to them.

“So we relayed our concern and they continue to do what they’re supposed to do, and that’s invest our money for us,” Burns said.

He said there’s a theoretical argument that one could take money out of one investment and put it in another with a similar profile and get the same return. But he said that’s pretty speculative.

An analyst with Legislative Research Services in April estimated that $124.5 million in corporation investments could be subject to divestment as of the end of the first quarter, March 31, and that about $20.2 million managed by the Department of Revenue could be. That represented about 0.15 percent of the state’s total invested assets, according to the memo.

The Legislative Research memo was requested by Sen. Bill Wielechowski, who’s Senate State Affairs Committee sponsored legislation to create an Iranian divestment policy for the state. Wielechowski had wanted to know if either the corporation or department had voluntarily divested from companies with interests in Iran during the quarter.

The bill, which passed from Wielechowski’s committee two days after Parnell’s letter, failed to gain any traction during the rest of the legislative session.

Wielechowski, D-Anchorage, said it is disappointing the Permanent Fund Corp. isn’t taking Parnell’s “suggestions and advice.” He said he continues to believe barring investment in Iran is a good piece of policy.

Burns said he’s not sure how valid the estimates included in the memo still are. Companies may have suspended business ties in or with Iran, or started them.

Some states publish reports with lists of so-called “scrutinized companies,” those that do business in places such as Iran or Sudan.

Alaska is not one of those. Legislative Research had previously compiled a list of companies with ties to Iran in which state resources were invested using a list generated for the state of Minnesota.

The memo says that was updated by comparing lists of companies reported by several states with reporting requirements, as well as the California public employees’ retirement system, and including new companies that appear on at least two of those lists.

Companies included in the memo’s compilation include China-based China Petroleum and Chemical, South Africa-based Sasol Ltd. and Russia-based Gazprom OAO.

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