Ohio - Not SO Fast

Earlier this year, it was reported that Ohio's legislature and pension systems had reached an "innovative" compromise to divest one half of their investments linked to Iran or Sudan. The divestment was to be limited to active international equity and fixed income portfolios with year end 2007 stated as a target date.

Several issues came to our mind: what about the other half of the investments linked to Iran or Sudan? What about the other classes of portfolios? It was in our eyes, the worst kind of half measure. We thought that at best, it would be expensive, time consuming, performance detracting, and totally devoid of even symbolic meaning.

Since then, some of Ohio's pension funds have moved in creative and smart ways to limit the impact of the agreement. Retirees and State Employees have rightly complained that their retirements should not be linked to NATIONAL foreign policy. The State Teachers' Retirement System has undertaken what appears to be a thoughtful study to understand the potential divestment costs to the fund and clarify their fiduciary liability. My favorite part of the draft policy reads: "State Teachers' Retirement System of Ohio would not divest of a restricted security in Iran or Sudan unless a comparable substitute of risk and return, including transactions costs, is available." Nicely done. They also asked the Attorney General to provide a written opinion on any conflict between the draft policy and the board's fiduciary duty.

See a good article on the topic at PlanSponsor.com (free subscription required)