The Sacramento Bee: A win for bill against Iran: Governor will OK law ordering funds to sell investments.

EXTRACT: In a preliminary analysis, CalPERS estimated Anderson’s bill could affect $8.5 billion invested in 50 international companies, including Siemens AG of Germany and Royal Dutch Shell of the Netherlands.

Gilbert Chan, The Sacramento Bee – California
Published: Sep 25, 2007

Saying California should take a “powerful stand against terrorism,” Gov. Arnold Schwarzenegger pledged Monday to sign legislation requiring the state’s two giant public pension funds to shed billions in Iran-related investments.

The governor’s decision delivers Iran divestment advocates a major victory and fuels their campaign to prod other states to enact similar bans.

Some scholars and financial experts say these limits could have a far-reaching impact on public pensions and cost funds billions in potential investment returns.

Together, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System could end up unloading more than $10 billion in holdings in foreign-based energy, nuclear and defense corporations with business ties in Iran.

The federal government already restricts U.S. companies from doing business in Iran, Sudan, Syria, Cuba and North Korea, countries listed by the government as state sponsors of terrorist.

Schwarzenegger and divestment supporters said California needed take a stand against Iran and terrorism. “California has a long history of leadership and doing what’s right with our investment portfolio,” Schwarzenegger said in a statement.

“This is a common sense bill. Money is the mother’s milk of terrorism,” said Assemblyman Joel Anderson, R-Alpine, author of the divestment measure, Assembly Bill 221.

The governor timed his announcement with his address Monday to the United Nations and the controversial visit to New York by Iranian President Mahmoud Ahmadinejad. Schwarzenegger cited his endorsement last year of a Sudan divestment bill to protest the mass killings in the Darfur region of Sudan.

In recent years, activists have launched campaigns for public pension divestments in Sudan and Iran. Today, 17 states have enacted some kind of ban.

“There is political pressure out there. This is going to resonate with a lot of state legislatures,” said James Hawley, co-director of the Elfenworks Center for the Study of Fiduciary Capitalism at St. Mary’s College in Moraga.

In California, labor, Jewish and Iranian organizations lobbied lawmakers and pension board trustees to back Anderson’s measure. Supporters said Iran’s policies pose a threat to world peace.

“The Iranian regime is up to no good. The only thing that is going to derail them is to hit them in the pocketbook,” said Rabbi Abraham Cooper, associate dean of the Simon Wiesenthal Center.

Historically, CalPERS and CalSTRS have opposed divestment legislation and argued these bans threaten investment income used to pay benefits for more than 2 million state employees, local government workers and schoolteachers.

The funds say they are more effective using financial muscle to persuade corporate executives to change their business practices in these countries and cite policies that screen future investments for geopolitical risks.

“Engagement as a shareholder gives CalSTRS a voice to influence a company,” said Sherry Reser, spokeswoman for the fund. The fund, she said, “will never tolerate support of terrorism. We will implement the bill.”

In a preliminary analysis, CalPERS estimated Anderson’s bill could affect $8.5 billion invested in 50 international companies, including Siemens AG of Germany and Royal Dutch Shell of the Netherlands. These investments generated $725 million in returns over the past five years. Moreover, transaction fees to divest and reinvest in other companies could total $100 million.

For CalSTRS, selling stakes in Iran-related energy companies alone could affect $1.4 billion in investments and cost about $10 million in fees. It also could lose more than $1 billion in potential profits over five years.

Anderson, though, said CalPERS and CalSTRS can find suitable replacement investments, especially with the emergence of terror-free investment funds. “There’s no proof they won’t get as good or better returns,” Anderson said.

But some experts say pension fund money managers could find unloading Iran-related investments tougher than divesting Sudan holdings.

“There are over 300 companies that have significant operations in Iran,” said Mark Tulay of RiskMetrics Group, a New York financial risk management consulting firm. That’s roughly three times greater than those doing business in Sudan.

The result, he said, is a narrowed field of available international equities.

“The ultimate impact long-term for public funds … is something that has not been fully explored,” Tulay said. “It certainly will have a material impact on the funds’ operations.”

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