Pension funds divesting from Russia over Ukraine invasion may be new weapon in sanctions war – USA TODAY
More than 200 statewide and 3,000 local pension funds could become next economic tool for sanctions on Russia for its invasion last week of Ukraine.
- Politicians like California Gov. Newsom are putting pressure on pension funds to divest in Russia
State and local pension funds that manage billions of dollars in retirement accounts for teachers, first responders and public employees may become the next tool for expanding economic sanctions on Russia following its invasion of Ukraine, a pension expert said Friday.
Keith Brainard, National Association of State Retirement Administrators research director, said retirement systems and state treasurers may start feeling political heat to divest in Russia.
He said there are more than 200 statewide and 3,000 local or municipal pension systems.
“Virtually every pension fund has some holdings. Russia is about 2% of the global GDP (gross domestic product), so it’s fair to assume there’s a rough size of holdings in public pension funds,” Brainard said. “Anecdotally, it’s generally 1 to 3% and most assets are in Russian-based index funds.”
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Brainard said elected officials, such as California Gov. Gavin Newsom, have recently called for divesting pension funds from Russia. However, Brainard said, it may not be prudent to hastily liquidate assets because those in charge of the retirement funds have a fiduciary duty to do what’s best for the long-term health of their pension plans.
Still, Brainard said events have changed so rapidly in the past week following Russia’s invasion of Ukraine that it may “no longer be prudent to hold Russian assets.”
“They have become an international pariah, and the holdings are not looking good,” he said.
Did Kentucky Teachers pension invest in Russia?
Brainard’s comments come after Kentucky’s pension system for teachers knocked down reports that it was one of the top shareholders in the largest Russian bank.
At the close of 2021, the Kentucky Teachers Retirement System was listed as the second largest shareholder of Sberbank of Russia, whose stock prices are tanking amid the Russian invasion.
But Beau Barnes, TRS’ general counsel, said that TRS sold off its direct investments on Feb. 23, losing $3.2 million of its initial $15.6 million investment. Russia invaded Ukraine the next day.
TRS continues to have “de minimus, indirect exposure through two international funds managed by outside investment managers,” Barnes said.
The sale was not mentioned when The Courier Journal in Louisville, part of the Gannett news network that includes USA TODAY, asked about TRS’ Russian investments earlier this week.
“TRS’s remaining exposure to holdings in Russia is proportionately negligible in a portfolio of about $26 billion,” Barnes said Friday.
About $30 million of TRS’s $26 billion investment portfolio – around 0.12% – is in Russian investments, Barnes previously said.
Around 0.05% of TRS’s portfolio is specifically in Russian banks, including Sberbank. At the end of 2021, their Sberbank shares were valued at around $13.6 million.
All of TRS’s Russian investments are through its international managers, Barnes said. It has no internally managed Russian investments.
The Kentucky Public Pension Authority holds around $51 million in Russian investments, a spokeswoman for the state treasurer’s office said. The funds, which equal around 0.23% of its overall $22 billion portfolio, include direct and indirectly managed investments.
Other states have recently pulled out of Russian assets because of the country’s invasion of Ukraine.
Earlier this week, Connecticut pulled more than $218 million in pension funds from Russian companies.
Congressman criticizes Kentucky investment
Prior to TRS saying the shares were sold, U.S. Rep. Thomas Massie, a Republican who represents Northern Kentucky, called the TRS investment “unfortunate.”
“Kentucky Teachers Retirement System was the 2nd largest US ‘institutional’ holder in the Sberbank or Russia. It’s obviously part of a much larger portfolio, but still unfortunate and notable,” Massie tweeted Friday morning.
Earlier this week, Massie was one of three representatives to vote against a House resolution backing Ukraine’s sovereignty and calling for an immediate ceasefire.
Reach Olivia Krauth at okrauth@courierjournal.com and on Twitter at @oliviakrauth.
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