The State Worker

New CalPERS leader wants pension fund to put its money back into tobacco

CalPERS’ newest elected board member floated a proposal Monday asking the pension fund to consider investing in tobacco, an industry that CalPERS abandoned 18 years ago.

Jason Perez, a Corona police officer who was elected to the pension board in October, put forward the motion during a meeting of the fund’s investment committee Monday.

Board members Margaret Brown and Dana Hollinger supported the proposal to consider reinvesting in tobacco, but the rest of the 13-member committee rejected it.

Perez campaigned last year as an opponent to so-called divestment measures, which lawmakers propose from time to time forcing CalPERS to pull its money out of industries ranging from coal to guns.

CalPERS as an institution and its board members generally oppose divestment from legal industries because withdrawing money from a particular investment can increase risk for the overall fund. Instead, CalPERS prefers to use its clout as the nation’s largest pension fund to press companies to account for their environmental and social impacts.

Perez a year ago confronted former Treasurer John Chiang at a CalPERS board meeting when Chiang advocated for divestment from retailers that sell certain kinds of guns and ammunition. CalPERS rejected Chiang’s proposal.

CalPERS last considered reinvesting in tobacco in December 2016. The pension board by a 9-3 vote at the time declined to put money back into tobacco and cigarette makers.

The fund divested from tobacco in 2001. From then through June 2018, the divestment cost the fund about $3.6 billion, or about 1 percent of its total asset value, Steven Foresti with Wilshire Associates told the board.

In 2017 and the first half of 2018, however, the divestment started showing positive returns. Tobacco investments underperformed the rest of the market in that time, meaning the money was better invested elsewhere than in tobacco, Foresti told Perez in response to a question.

For those six quarters, divesting from tobacco saved the fund about $490 million, dropping the total loss to the $3.6 billion, Foresti said.

In addition to tobacco, CalPERS has divested from Sudan, Iran, manufacturers of guns that are illegal in California, thermal coal and certain companies that don’t meet its environment, social and governance standards.

The fund has lost about $11 million on the firearms divestment, but the others have gained the fund money. Overall, its divestments have cost the fund about $2.5 billion, according to Foresti.

The latest divestment proposal, Assembly Bill 33, would eliminate CalPERS’ investments in private prisons. CalPERS staff member Danny Brown recommended the board oppose the legislation in order to improve its chances of meetings its return-on-investment targets.

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