A new survey from financial research firm Spectrem Group finds pensioners are more focused on returns over political gestures like divestment and overly active shareholder engagement.
According to the survey of over 3,000 pension fund members, 88 percent of national respondents agreed that their pension fund should be “focused on generating returns; it shouldn’t be making investment decisions on the basis of politics, even if I support the idea or cause.” 86 and 79 percent of respondents from the California’s Public Employment Retirement System and the New York City pension funds respectively also agreed.
It’s no wonder then that the majority of pension funds across the country have said no to costly divestment gestures. Vermont and Seattle have rejected divestment for its high costs and ineffectiveness, and just last month CalPERS tweeted a previous divestment had cost the fund an estimated $8.5 billion in potential returns. Yet the leader of New York City’s pension funds is considering a different path, ignoring the wishes of pensioners for political gains.
Comptroller Scott Stringer – the leader of the city’s five primary funds – recently announced his plans to reconsider divestment, following an announcement from Governor Cuomo pushing the New York State Common Retirement Fund to give up investments in fossil fuels. The likelihood of Stringer making progress is small: The New York State comptroller has repeatedly rejected divestment despite the Governor’s push, and Stringer himself has called for engagement over divestment. Yet Spectrem’s findings note pensioners are sick of this political activity and want their leaders focused on returns instead of politics.
According to the survey, when asked about fund management 75 percent of members indicated that the most important issue for fund managers should be to focus on maximizing returns and getting the pension fully funded, with only 14 percent preferring fund managers focus first and foremost on advancing social and political causes. According to Spectrem, pensioners are also cautious of over-engagement at companies. According to the report’s press release:
“A full 90 percent of NYC Funds members indicate they are similarly slightly or very concerned that fund management is focused on the wrong issues. Nearly half (48 percent) believe NYC Funds may have gone too far with its challenges to companies, with members age 30 and younger most concerned about this (51 percent). Forty-one percent believe that every dollar spent on these activities is one less dollar allocated to leveraging the best investment research available, with members age 31 – 50 most concerned about this (45 percent).”
According to Think Advisor’s write up on the report, “Members’ poll responses showed a lack of in-depth knowledge of their pension fund’s portfolio allocations and the riskiness of its investments.” What is clear, however, is members focus on returns, with 93 percent of members saying it is important or very important that their pension generates returns at or above market level.
Divestment stands in direct contradiction to these goals, with proven costs and new risk for pensioners. Let’s hope these fund managers are listening to their beneficiaries and saying no to costly, political gestures like divestment.