STUMP » Articles » Divestment and Activist Investing Follies: The Democratic Pols Rev It Up

Divestment and Activist Investing Follies: The Democratic Pols Rev It Up

by meep

17 January 2018, 03:24

I let it go for a month, and the stories just pile up.

Let me gather them into two piles: the divestment from “dirty energy” (the old stuff) and the activism surrounding Facebook and other social media/mobile devices (the new, hot stuff).

DIRTY ENERGY DIVESTMENT (ALSO, PRIVATE PRISONS)

Here, have a pile of stories since my last divestment update:

In addition to the divestment, diBlasio is suing oil companies:

NEW York’s mayor has announced plans to sell off $5 billion in fossil fuel investments from city pension funds after suing oil companies for billions of dollars to help fund protection against climate change.

The city has filed a federal claim seeking damages from BP, Chevron, ConocoPhillips, ExxonMobil and Royal Dutch Shell to help compensate its $US20 billion ($AU25 billion) plan to protect the city, economy and public services from the effects of climate change.

Mayor Bill de Blasio drew comparisons between oil companies and the tobacco industry, which knowingly profited out of a habit they knew to be harmful.

While other cities in Europe and the United States have already taken similar steps, New York hailed its move as significant, as it is the biggest metropolis in the country. The city suffered billions of dollars of damage in Hurricane Sandy which paralysed New York in 2012, causing 3m-high floods across coastal New York and New Jersey, and an estimated $US71 billion ($AU89.7 million) in damage.

A study published by researchers in October warned that rising sea levels from man-made climate change could prompt catastrophic flooding in New York as frequently as once every five years by 2030 to 2045.

By 2030? That’s only 12 years away. Seems like we don’t have to wait too long to see if this is true.

That said, a lot of the NYC area is in low-lying areas. The Hutchinson Parkway in the Bronx seems to flood any time there is appreciable rainfall, and the Saw Mill floods more frequently than that. BECAUSE THEY’RE RIGHT NEXT TO WATER.

ENERGY COMPANIES PUSH BACK AGAINST LAWSUITS

About those lawsuits… some really amusing things are happening here. The energy companies are pushing back, using the governments’ own bond offering statements against them.

You see, many of these places bitching about the danger climate change is putting them in (oh, in 100 years or so… maybe…) discounted such dangers when they went to the market to go borrowing money.

Exxon Prepares To Sue California Cities, Says They Contradict Themselves On Climate Change

Some government officials in California are hypocrites pushing a political agenda that involves using private lawyers to sue and demonize ExxonMobil, the company is now arguing in a Texas state court.

On Jan. 8, Exxon took the first step towards suing those who orchestrated climate change lawsuits in California by asking the Tarrant County District Court to allow it to question an assortment of government officials and a Hagens Berman lawyer. The company says those local officials are talking out of both sides of their mouths – blaming Exxon for an impending flooding disaster while not disclosing that alleged threat to possible investors in their bond offerings.

In 2017, the counties of Marin, Santa Cruz and San Mateo and the cities of San Francisco, Oakland, Santa Cruz and Imperial Beach filed suit against dozens of energy companies, including Exxon and 17 other Texas-based businesses, over climate change. The company has previously been targeted by the attorneys general of Massachusetts and New York.

“It is reasonable to infer that the municipalities brought these lawsuits not because of a bona fide belief in any tortious conduct by the defendants or actual damage to their jurisdictions, but instead to coerce ExxonMobil and others operating in the Texas energy sector to adopt policies aligned with those favored by local politicians in California,” attorneys for the company wrote.

In doing so, they must have lied to potential investors in their respective bond offerings, the company claims.

Statements made to potential investors contradict allegations made by the municipalities when they sued the energy industry, the filing says. For example:

San Mateo County’s complaint says it is “particularly vulnerable to sea level rise” and that there is a 93% chance the county experiences a “devastating” flood before 2050. However, bond offerings in 2014 and 2016 noted that the county “is unable to predict whether sea-level rise or other impacts of climate change or flooding from a major storm will occur.”

And it goes on like that. New York should take care — I know the state and New York City issue bonds all the time.

Now, the New York politicians don’t need a civil conspiracy to dream up these SJW lawsuits, but some smaller cities in California may have needed the help:

Exxon believes 16 individuals possess evidence that would allow it to file a lawsuit that would likely contain a claim for civil conspiracy.

Notable among the group is Matt Pawa, a Hagens Berman attorney instrumental in creating a “playbook” discussed at a conference in La Jolla, CA, and carried out by the AGs of New York and Massachusetts and the California local governments, Exxon says. He represents San Francisco and Oakland in their lawsuits.

Exxon has also been locked in a dispute with New York AG Eric Schneiderman and Massachusetts AG Maura Healey. Those AGs have issued subpoenas to the company as they investigate whether it misled investors about its impact on climate change.

A recent Times Union article showed that Schneiderman invested between $50,000 to $75,000 in Vanguard Energy ETF. That fund’s biggest holding is Exxon.

“A collection of special interests and opportunistic politicians are abusing law enforcement authority and legal process to impose their viewpoint on climate change,” Exxon says.

I am so happy my tax money is being wasted on this, while the pension gaps gape.

SOCIAL MEDIA AND TECH SILLINESS

Not being happy with bitching at energy companies alone, they’ve got to go after the proverbial golden-egg-laying geese.

NYS Common, Arjuna Capital Push for Facebook, Twitter Content Governance:

The $192 billion New York State Common Retirement Fund (NYSCRF) and activist investor Arjuna Capital announced shareholder proposals calling for Facebook and Twitter to better monitor content on their respective platforms, specifically content regarding sexual harassment, fake news, and hate speech.

“Sexual harassment online is a threat to women and a danger to long-term shareholder value. If users feel unsafe on the platform, they simply won’t use it. In the wake of the #MeToo movement, women are no longer putting up with what has been the status quo for far too long,” Natasha Lamb, managing partner at Arjuna Capital and lead-filer of the proposals, said in a statement, citing a May 2017 article in Elle magazine regarding sexual harassment perpetuated on Facebook as well a mass of women boycotting Twitter in October for the same reason. “Now is the time to take social media companies to task for failing to effectively govern content policy.

And blah, blah, blah. This is really getting into operational issues for the platforms, which goes way beyond the type of oversight generally expected from shareholders.

Here are a few more:

Before getting into the nitty-gritty, the mobile device item links to this website: https://thinkdifferentlyaboutkids.com/

So I clicked through, and saw this disclaimer:

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Bullshit, I am not going to agree to that. (I clicked I DISAGREE and it sent me back to google. HOW DARE YOU! YOU’RE TRYING TO INFECT MY MIND!)

Also, I was perfectly able to get at the front page content via the page source. Y’all are real uppity to put a disclaimer before I’m supposed to read stuff like this:

A study conducted recently by the Center on Media and Child Health and the University of Alberta found that 67% of the over 2,300 teachers surveyed observed that the number of students who are negatively distracted by digital technologies in the classroom is growing and 75% say students’ ability to focus on educational tasks has decreased. In the past 3 to 5 years since personal technologies have entered the classroom, 90% stated that the number of students with emotional challenges has increased and 86% said the number with social challenges has increased.

So… teachers couldn’t confiscate the devices in the school? FFS, when Furbys and tomogotchis and all that crap was going around, teachers simply took them away. My kids’ schools have cellphone, etc., policies. This does not require Apple to do anything… esp. since the Apple stuff is too expensive to be giving to kids.

By the way, according to them (JANA and Calstrs), they have about $2 billion in Apple stock. Apple’s market cap is about $900 billion.

WHOSE MONEY IS BEING PLAYED WITH?

When it comes to the activist hedge funds, that’s really their business. If that’s how they’ve advertised themselves to their investors, this is the sort of behavior one would expect.

However, I imagine that there are various pension funds in those hedge funds, on top of the public pension funds that are issuing dicta under their own names. Would they like to divulge who is investing with them?

Even more clearly: the pension money is not the property of the politicians throwing their weight around.

I assume the politicians out there politicking think it will lift them to bigger and better things (maybe not higher office – diBlasio is delusional if he thinks he can get to be governor, much less President – but a cushy lobbyist position where they get bought off for brownie points could be their glide path.)

But it may not bring them kudos anywhere.

SOME COMMENTS FROM THOSE WHO KNOW BETTER

Now, people like me can go on about how foolish this politciking is with other people’s money, but let us consider messages from two people: one who is in the catbird seat right now, and one who used to be.

First, Christopher B. Burnham, the former state treasurer of Connecticut, who had been sole fiduciary of the $16 billion Connecticut pension system at the time: Pensions should avoid politics and invest for the benefit of our workers

Why do public fiduciaries think they should impose their political agenda on other people’s retirement benefits? Is not the standard of care to manage public retirement funds with the highest return at the lowest reasonable risk? With more than 50 percent of all state pension funds significantly underfunded and at least five states, including my native Connecticut, facing immanent bankruptcy due to grossly unfunded state employee and teacher pension systems, why would both beneficiaries and taxpayers, who will be forced to makeup those liabilities, want to politicize the management of the money? As I will also be a beneficiary in a few years, please manage the money without a political agenda.

When I was elected state treasurer of Connecticut in 1994, I inherited the worst performing state pension system in America for the previous 10 years. Within the first six months we fired the vast majority of money managers and indexed 75 percent of the portfolio. Yet, I was attacked for holding tobacco stocks in the portfolio, by virtue of the fact that we owned an S&P 500 stock index fund. I refused to play politics with the pension, particularly after 10 years of politics had relegated pension fund performance to the gutter. Instead, we focused on the highest return at a reasonable risk, and performance skyrocketed from dead last to the top 25 percent in the country, overnight.
…. to force a political agenda to be shoved into the investment of their retirement accounts is wrong, and a clear violation of fiduciary responsibility. Moreover, if you divest from energy investments, where do you stop? If you remove energy companies, why not remove fast food companies? How about booze, gambling and producers of sugary drinks? As a combat veteran, I am very grateful for the strength of our American defense industry and believe we should invest more in defense companies. Would everyone else agree with me?

Well, maybe they’re a good long-term investment. But I wouldn’t assume so without checking the financials, management, etc.

Unfortunately, he gives an out:

Unless mandated by law, such as owning shares in companies doing business in North Korea, there is no room for ideological agendas in the management of other people’s money, particularly our teachers and government employees.

This is asking for politicians who are not in a fiduciary position to pass laws handcuffing the actual fiduciaries. Maybe he’s ignorant of such pushes, not being in California and all.

Now, Tom DiNapoli is the current comptroller of New York and the sole fiduciary of the state pension funds — let’s see what he has to say:

State Comptroller Tom DiNapoli cautioned again this week that the financial interests of the state pension fund must be weighed when considering divestment from fossil fuels.

DiNapoli’s comments follow Gov. Andrew Cuomo’s suggestion in his State of the State last week that he and DiNapoli work together to divest the $192.4 billion New York State Common Retirement Fund from fossil fuels. Cuomo wants the fund to cease making new investments in entities with “significant fossil fuel-related activities” and will create an advisory panel to develop a “de-carbonization roadmap” to support clean energy investments.

“I understand what’s behind the divestment movement, and I’m very sympathetic to it,” DiNapoli told reporters following an event at the Times Union’s Hearst Media Center in Colonie on Tuesday. “We believe climate change is real, climate risk is an issue that the pension fund should deal with. We have been dealing with it. But just divesting I don’t think is going to put any of these companies out of business.”

The comptroller asserted that he isn’t allowing himself to be pushed into divesting, either.

“I’m an independently elected official,” he said during the event. “I have a particular independence when it comes to managing the pension fund, and that will not be compromised.”

DiNapoli outlined a few complexities to divestment, including the time it would take.

For comparison, when the fund divested from companies doing business with Sudan and Iran, DiNapoli said it took two years to fully pull out about $90 million. In terms of fossil fuel investments, the pension fund currently has $1 billion invested in Exxon Mobil alone.

Also, DiNapoli noted, the fund invests in part in index funds, which can include fossil fuel-related investments along with investments in other companies/industries. By the same token, DiNapoli created a $2 billion index to shift investments to lower emitters.

You may be wondering — just how big are the state pension funds?

There are three state funds in the Public Pension Database, totalling almost $300 billion in assets as of 2015. That’s close enough for order of magnitude issues.

What’s the market capitalization of Exxon Mobil? about $370 billion as of my writing.

Isn’t that interesting? The pension plans having about as much assets as Exxon is worth?

More from DiNapoli: State comptroller discusses fiscal outlook:

When it comes to Gov. Andrew Cuomo’s proposed changes on how the state pension fund invests, namely his desire for the fund to divest from fossil fuels, and to change investment strategies to promote diversity in coporate boardrooms, Dinapoli was measured in his comments.

“At the end of the day, my responsibility is … to make sure we keep the fund well-funded,” he said.

DiNapoli notes that because the pension fund is a public fund, people have opinions on how to invest. “We don’t mind the discussion.”

“We do like our money to go for good purposes and causes,” DiNapoli said. (Recall he has pressed Exxon on climate change as an investor). “What we believe as a long-term investment … investing in companies that are good corporate citizens on most measures makes sense.”

“I’m totally supportive of the Paris agreement,” DiNapoli says of fossil fuel investments. “But the notion that we’re going to lead the fight on climate change by making the pension fund sell all their energy stocks to me seems like not the smartest strategy.”

“We rarely divest, we prefer to be an investor and we engage with companies (like Exxon). We would lose that leverage if we’re not at the table anymore as an investor,” he said, noting that the process of divesting is a long one.

He also said the last group he wants to dictate pension fund investments is the state Legislature, because the political forces would be dangerous. He asserted that he is an independently elected official and that will not be compromised.

DiNapoli said he doesn’t sense a great appetite to raid the pension fund to help fund the state budget, “but I wouldn’t put anything past anybody.”

DiNapoli is responsible for the pension funds. I do not like the situation where a single person is fiduciary for a fund that big, but it does simplify assigning blame.

DiNapoli knows it’s his head if the pension fund catastrophically fails. Sure, there’s the governor and other people who would likely have fall-out, but when the class action lawsuits start, they’ll know where to point.

DiNapoli is a standard New York Democratic politician. He’s making all the proper noises re: climate change.

Heck, Bloomberg the alleged independent politician pointed out that divestment drives for pension funds was a bad idea, even though Bloomberg puts his own money out there for his own anti-gun campaigns. But Bloomberg, even when NYC mayor, didn’t jump onto the gun divestment campaign for pensions. Bloomberg is a money guy, and when it comes to the bottomline, he knows what’s serious.

WHAT HAPPENS WHEN THE MONEY RUNS OUT?

Let’s get down to brass tacks: the pension funds where these divestment shenanigans are playing out have much worse problems to think about.

OPINION: New ACCF report finds NYC public pension fund system in bad shape and getting worse

On the heels of New York City’s push to divest its investments in fossil fuels, a new report finds politicized investment decisions are a recurring example of the city comptroller advancing social causes over financial results.

In Volume Two of its “Point of No Returns” series, the American Council for Capital Formation (ACCF) takes a closer look at how the five public-sector pension funds that collectively comprise the New York City Retirement Systems got in the shape they’re in today – and how taxpayers are ultimately the ones who will bail-out the program if it cannot meet its future obligations. The ACCF report also examines the role that politics continues to play in how fund beneficiaries’ money is being invested, and whether too much of the focus of fund managers, board members, and the city comptroller himself is on using pensioners’ money to advance political and social causes – actions that are done at the expense of maximizing returns and doing what’s necessary to improve the system’s underfunded status.

…..
Today, four out of every five taxpayer-dollars collected by New York City’s personal income tax are spent paying down the city’s public pension fund system’s liabilities, a 567 percent increase over the past 15 years. The city’s budget will soon allocate more spending on pension costs than on social services (excluding education). At the same time, the funds’ liability ratio continues to grow more severe by the day: while “official” reports estimate the funds to be merely $56 billion in the red today, other analyses based on more realistic projections of future returns point to an actual funding gap more than double the official figure.

A study came out recently that public pension participants assume their pensions are in a good condition.

Although U.S. equities delivered record-setting performance in 2017, the majority of U.S. public pension plans are underfunded, according to a survey by Spectrem Group.

The survey found that 48% of public pension plan members say they are relying on their pension for at least half of their retirement income. Ninety-two percent of members say their pension fund’s ability to generate returns at or above the fund’s target level is important or very important. Among California Public Employees Retirement System (CalPERS) members, this rises to 96%.

…..
Forty percent think their funds have performed in line with the market for the past few years, which Spectrem contends is not always the case. Among NYC Funds, 46% of members have this misconception, and among CalPERS members, the percentage is 42%.

Only 31% of members think their pension is underfunded when, in fact, all of their pensions are underfunded at least to some degree, according to Spectrem. Eighty percent of NYC Funds think their pension is fully funded, but it is only 68% funded.

The link to the original survey and paper.

So here’s the deal.

So far, public pension participants have been able to assume that they don’t have to worry about their pensions.

After all, the taxpayers can always make up the shortfall, right?

But as taxpayers are not always able to fill billion-dollar holes, the pension participants may find their payouts short of what they expected, and they will be very angry.

They will not be happy to find out that the money intended to pay their benefits was thrown away on political games for specific politicians to burnish their progressive credentials.

It’s all very well to make noise about “long-term investment” for impacts that wouldn’t happen for 50-100 years when the money runs out well before then.

What then?

STUMP » Articles » Divestment and Activist Investing Follies: The Democratic Pols Rev It Up » 17 January 2018, 03:24

Divestment and Activist Investing Follies: The Democratic Pols Rev It Up