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MsnMoney: CalPERS asks portfolio companies to minimize Iran risk

The California Public Employees’ Retirement System urged four companies in its public equity portfolio to take steps to “minimize the risk of investment in Iran,” as part of a broader effort by large U.S. pension funds to reconsider financial investments in the increasingly isolated Middle East powerhouse.

CalPERS, the nation’s largest public pension fund with assets of more than $245 billion, wants the companies to “report policies and steps to minimize the risk of investment in Iran,” pension fund officials said Tuesday. CalPERS has more than $2 billion invested in the four foreign energy companies in question: ENI, Repsol YPF, Royal Dutch Shell and Total.

Chief investment officer Russell Read said CalPERS needs information to “assess the potential threat to investments” by those companies. “Letters from CalPERS and others in a coalition of city and state pension funds are asking companies to describe the policies and safeguards they have in place to mitigate the risks of doing business in Iran,” Read said in a July 24 statement.

Clark McKinley, a CalPERS spokesman, told the San Francisco Business Times that “the threat is what could happen if there were some kind of sanction or some kind of action in Iran,” calling the situation similar to earlier international efforts to bar investments in Sudan, which has been shattered by civil war and by what many consider genocide. In addition, California, other states and Congress are pursuing legislation “to force pension funds to divest their investments in Iran,” McKinley said.

The U.S. government considers Iran to be a state sponsor of terror and U.S. law bans American companies from doing business there, though many foreign companies are not currently barred from doing so.

Other members involved in the effort, along with CalPERS, are New York City’s Office of the Comptroller, the effort’s leader; the Office of the New York State Comptroller; North Carolina’s Department of the State Treasurer and the Illinois State Board of Investment. The number of companies contacted by each of the coalition’s members varies depending on their portfolio holdings, officials said Tuesday. According to published accounts, coalition members’ investment portfolios comprise $570 billion in cumulative assets, including close to $4 billion in energy firms with operations in Iran.

Letters to specific companies referred to significant involvement by those organizations “in Iran’s defense or nuclear sectors, and in the development of (its) oil and natural gas resources,” according to CalPERS. Coalition members also expressed concern that energy production facilities might be attacked, as they were during the Iran-Iraq war of the 1980s, “if growing U.S.-Iran tension led to war.”

CalPERS and the other pension funds say pending state divestment, state and federal legislation increasingly “is raising the prospect of having to divest investments in foreign companies that do business in Iran, and that the United Nations might impose tougher sanctions on Iran if it continues to defy U.N. resolutions related to the country’s nuclear program.”

But McKinley said CalPERS is opposed to divestiture legislation, because such laws conflict with its fiduciary requirement to enhance financial returns to provide for its pensioners and health-plan enrollees. CalPERS’ portfolio includes about 7,000 companies, including more than 5,000 based in the United States and about 2,000 based elsewhere, he said.

Some lawmakers and other critics contend that CalPERS and other major pension funds have been timid in their response to Iran, and that only legislative remedies will work.

July 24, 2007 7:40 PM ET

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