STUMP » Articles » Divestment and Activist Investing Follies: Don't Let the Evil Ones Bank! Also more Pension Divestment Idiocy » 8 March 2018, 10:57

Where Stu & MP spout off about everything.

Divestment and Activist Investing Follies: Don't Let the Evil Ones Bank! Also more Pension Divestment Idiocy  


8 March 2018, 10:57

This is getting absurd. What do I mean “getting”… it is absurd.

News alert from Bloomberg: Wells Fargo Is the Go-To Bank for Gunmakers and the NRA

I’m not even going to excerpt the article, the concept is so stupid. Let me just give you the top bullets: [cough]

San Francisco-based firm inherited its relationship with NRA
Banks arrange for weapons companies to access loans and bonds

Whoa, you mean businesses can get credit via banks?!

Yes, Michael Bloomberg, I understand you hate the peons having guns. Not the peons you pay as your armed guards, to be sure, but peons like me.

Michael R. Bloomberg, founder of Bloomberg News parent Bloomberg LP, is the donor to groups that support gun control, including Everytown for Gun Safety.

I have a question for you: what banks do y’all use? Where does Everytown for Gun Safety deposit all its donations?

I see that ActBlue is what is being used for processing donations to the gun-grabbing group. What bank do they use? Oh, I see at the bottom here it’s Fifth Third Bank… and I recommend all angry gun-rightists (like me) to… do absolutely nothing re: this bank.


I mean, you want to cut off the banks, right — why stop there? Find out what accountants do their taxes! Hound them! Is there a barbershop the NRA leadershop uses a lot? Why not publicize that! Newsworthy! Do they prefer Burger King over McDonald’s?! WE GOTTA KNOW!


I am not the first person to call out how ridiculous this is.

News or activism? Bloomberg outs Wells Fargo as the go-to bank for the NRA, gunmakers

Now, I have a Wells Fargo account, too… and two credit union accounts as well.

I have a Wells Fargo account for the same reason the NRA does: I originated the account some decades ago when I lived in North Carolina, with Wachovia Bank, which was later bought by Wells Fargo. And the credit unions are also due to prior employment and current location. I have good reasons for keeping all these accounts. None of them have to do with guns, to be sure.

More commentary:

There are so many levels of idiocy involved, I just don’t know. Is this sort of thing helping Bloomberg at*all? I mean, he had that big win over the Cook County soda tax… oh wait, that’s right. He lost there.

He’s also been “winning” at boosting NRA numbers: Membership in Gun Groups Is Spiking After the Florida Shooting

Other commentary on trying to stigmatize gun-owners, etc.:


Back to my main interest – the divestment push for pension plans. Before the gun divestment push, there were pushes for divestment from fossil fuels, tobacco, etc.

Here is the last week’s stories:

Let’s look at that last piece, to see why not all pension funds are all aboard the divestment train.


The subtitle of the WSJ piece is Despite growing pressure, divestment could be at odds with the fiduciary duties of those who oversee public pension funds:

A Florida lawmaker is proposing the state’s retirement fund stop investing in gun makers following a deadly high-school shooting last month. The officials who manage those investments say that would be a mistake.

Dropping gun stocks would conflict with the duty of the $161 billion fund to maximize returns for public workers, according to Florida State Board of Administration spokesman John Kuczwanski. “As fiduciaries, the SBA must act solely in the economic interest of the participants and beneficiaries,” he said.

WHAAAA? They can’t just make investment decisions based on politicians’ whims?! What’s this?

Many public pension funds sold South African investments in the 1980s as a protest against apartheid and banned investments in tobacco products in the 1990s and early 2000s. In the aftermath of the Sept. 11, 2001, attacks, more than 20 states passed laws that could compel their pension funds to divest from Sudan, Iran or other states considered by the U.S. to be sponsors of terrorist activity.

But following the 2008 financial crisis, the funds faced intensifying pressure to maximize returns. Many began to rethink investment bans, choosing instead to engage with their portfolio companies on sensitive issues and make decisions based on a more complicated evaluation of a company’s record on environmental, social and governance factors.

Most major U.S. pension funds outside of New York and California have resisted calls by activists to dump companies tied to fossil fuels, and some have also revisited their tobacco bans. Florida in 1997 banned the purchase of tobacco stocks but then lifted the prohibition in 2001. The fund lost approximately $500 million in returns over those four years as a result of the divestment, Mr. Kuczwanski said.

Oh look.

Now, I could get all rocking-on-that-moral-high-horse and go on about how my dad died of a heart attack before age 40 due to Demon Tobacco (totally true). But there’s also Demon Sugar (diabetes!), Demon Fast Food (obesity!), Demon Car (fatal car crashes!), Demon Booze (alcoholism!), and on and on. Cigarettes are legal products, and they’re still profitable.

When you bar investment of the pension funds in entire sectors because of some moral judgment on legal business, you are very likely cutting potential returns for the funds.

Again, generally it’s people without fiduciary duty to the pension plans who are deciding to bar these investment sectors — that is, the politicians, not the fund managers.

Let’s look at a run-down:

Officials in Colorado and Indiana responded to questions from the Journal about gun-stock divestment by saying that their primary duty is to produce returns that can deliver benefits promised to workers and retirees. Officials in Texas said their aim was to “serve the fund’s investment goals.” Extricating gun-stock holdings from passively managed funds designed to mimic market indexes, some officials also said, could cause the funds’ performance to suffer. Two of the 12 funds didn’t respond to requests for comment.

So, we’ve got Colorado, Indiana, Texas, and Florida as having managers who know what their duty is.

Tom Byrne, chair of the New Jersey State Investment Council, said he plans to discuss with other council members the idea of creating a policy prohibiting gun investments. The division, which oversees $78 billion in assets for the state’s pension funds, including for teachers, had $840,000 in gun stocks as of mid-February.

“I can well understand why members of a teachers’ pension fund might not want to own gun stocks,” Mr. Byrne said. “I don’t see any conflict with the fiduciary obligation, frankly.”

Members of a teachers’ pension fund may also not want investments in booze or fast food, either. You wanna go down this path, New Jersey? How about banning pharmaceuticals due to opioid overdoses?

Note: New Jersey fund managers, overseeing some of the worst-funded pensions in the country, are chasing this fad.

That’s the fund managers – in many of the cases, the idiocy is coming from the legislatures, and the managers can’t do much about that. They’ve got to fulfill their duty within the parameters of what they’re allowed to do by the politicians.

Twelve state systems that oversee teachers’ retirement money own shares of gun manufacturers American Outdoor Brands Corp., Sturm, Ruger & Co., and Vista Outdoor Inc., according to the most recently available records from the funds and S&P Global Inc. Many of those investments represent relatively small holdings in much larger funds tied to market indexes. Of the 12 states, officials in New Jersey and Massachusetts told the Journal they are exploring plans to sell gun stocks in the wake of the Florida school shooting.
….. Massachusetts Treasurer Deborah Goldberg is drafting a bill that would prohibit investment of the state’s pension fund, which held nearly $4.8 million in gun makers’ stock as of Jan. 31, in firearms or ammunition manufacturers.
In Florida, lawmakers have prohibited the retirement system from investing in companies linked to Sudan, Iran and entities that boycott Israel. It currently owns $2.6 million in gun stocks, and legislation was introduced on Tuesday that would force the system to sell some of those holdings within 12 months.

I have a few final questions:


Many of the divestment-divas are overseeing extremely poorly-funded pensions. Do you think the taxpayers will be willing to ship in more money for pensions to the extent your divestment fads hurt pension returns?

Do you think the public employees would willingly contribute more of their pay into their pensions, in order to make up for lost returns?

Do you think public retirees will be happy to get pension benefit cuts because of faltering pensions?

Do you think that there will be nothing to pay for your playing around with the money intended to secure people’s retirement?


I can see that last one being a sure thing for many of the politicians – by the time the amount of pain these investment restrictions impose on the pensions become known, many of these politicians will be long gone. That’s the “beauty” of public pensions, after all. Generally, it takes some decades until the extent of the disaster is made clear.

The big problem is that the people who get hurt by these decisions aren’t the people making them. This is why, after long being annoyed with Nicholas Nassim Taleb, I finally like an idea he has been pushing: Skin in the Game.

I agree with the following blurb:

“The problem with Taleb is not that he’s an asshole. He is an asshole. The problem with Taleb is that he is right.”—Dan from Prague, Czech Republic (Twitter)

The problem I used to have with Taleb (I didn’t mind the self-promotion or even the assholishness) was that he said things that were true… but not useful. He told me things I already knew, but there was nothing useful I could do with them.

But now I’m seeing some of the arc of what he has to say, and I think the “Skin in the Game” concept – which is really pointing out principal-agent problems writ large – really highlights something, and I think I finally understand the point of all his useless truths. The point is not to give much power to people who will not feel any of the downside (or upside) of the power they have.

The pension fund managers, if they lose $1 billion on green investments – as per Calpers – they can flippantly say that was a “noble way to lose money” – because that wasn’t his money at all. It wasn’t taken out of his hide. It made the pension fund more precarious, because they had a beautiful political plaything in huge pots of money.

I am still thinking through this – it’s tough to get away from the principal-agent issue – but I think there would be a lot more interest in this divestment behavior on the part of taxpayers and public employees and retirees if they knew that they all might have to feel pain because of somebody else’s moral preening.

Say, if we forced the politicians to have fiduciary duty for the funds they are writing legislation about, and let them be sued… ah, but maybe that’s a bit too iffy.

Perhaps if there was more risk-sharing in the public pensions design, this would make everybody behave a bit better.

But that’s for another time.

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