Sunday, March 4, 2018

Retirement Investment funds and social issues

I recently read an article that complained about how public pension investment funds were underfunded and were also investing in underperforming stocks that were being used to fund social issues. Members wanted their funds to perform. According to the story, I read, “Ultimately, members reiterated that they want the performance of their funds to be financially driven, strongly preferring to maintain personal control over any charitable donations or socially motivated investments. That focus on financial performance is the biggest and most important takeaway from the Spectrum research – pension members simply don’t see their funds as a political tool to advance social issues and causes.

Sadly, large funds are increasingly being used for activism, with members' retirement treated as a subordinate concern. For example, CalPERS and NYCERS have both embarked on strategies investing heavily in alternative energies at the expense of more traditional energy resources, despite the fact that many renewable energy stocks continue to underperform”

How are public pension plans performing and what percentage of their asset allocation is being used to fund social issues and causes around the world. First, let’s address the performance of the funds. According to the Organization of Economic Cooperation and Development (OECD), the following countries funds did well between 2010 and 2015


Is the risk of investing in renewable energy a problem for pension funds worldwide? According to the OECD, nine funds (worldwide) reported exposure to renewable energy, with Denmark’s Pension reporting the largest allocation (through unlisted equity), followed by two Netherlands Funds. Denmark Pension has increased the share of renewable energy companies in their energy portfolio from 11% to 41% from 2010 to 2014, and expect this trend to continue. As part of its new investment policy adopted at the end of 2015, Denmark plans to invest an additional EUR 4 billion in renewable energy generation. While the changing regulatory landscape in the energy sector brings challenges, it can also give rise to investment opportunities, specifically in renewable assets. Québec Pension Plan, Argentina’s Sustainability Guarantee Fund, all had significant allocations to social infrastructure. 

Looking at the funds above you can see the investment in social causes is not affecting the rate of return of these funds, with the Netherlands leading the world at 7.4% and Denmark in the top ten at 4.1%.

Source: Pension Markets in Focus (pdf file)


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