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CalPERS votes to broaden ban on tobacco investments

By Robin Respaut

The California Public Employees’ Retirement System voted on Monday to broaden its restrictions on tobacco investments, opposing a recommendation by the pension fund’s staff to reinvest in the controversial asset.

CalPERS staff had recommended that the board remove its 16-year ban on tobacco investments in light of an increasing demand to improve investment returns and pay benefits.

But the board voted to remain divested and to expand the ban to externally managed portfolios and affiliated funds.

The nation’s largest public pension fund embarked on an extensive review of tobacco earlier this year, after a Wilshire Associates report estimated the exclusion of tobacco had cost the fund about $3 billion between 2001 and 2014. That was a considerably larger portfolio impact than CalPERS’ other divested assets, such as Iran, Sudan and certain firearms-related companies.

California State Controller Betty Yee, who voted in favor of the ban, said on Monday that CalPERS should be mindful of the declining tobacco sales volumes, despite the recent surge in tobacco stocks. Yee also expressed concern about the ongoing threat of tobacco litigation on the industry.

In the 10 years to November 2016, the MSCI World Tobacco Index rose 12.3 percent compared with just 3.8 percent on the MSCI World Index. The tobacco index includes Philip Morris International Inc, Altria Group Inc , British American Tobacco Plc, Japan Tobacco Inc and Imperial Brands Plc.

Board member Dana Hollinger said she was “not a fan of smoking” but did not support the tobacco ban, because “every time we divest, we are chipping away at the diversity of the portfolio.”

“I see the fiduciary here as maximizing and securing benefits to our beneficiaries,” Hollinger said.

CalPERS decision to reconsider its tobacco divestment has caught the attention of health groups, industry shareholders, institutional investors and many of CalPERS’ beneficiaries.

“It is clear that there is abundant, compelling and strong public policy arguments to stay out of tobacco,” said board member Priya Mathur. “The tobacco industry is facing a structural decline in terms of the volume of sales and their ability to gain revenues for a number of reasons.”

State Treasurer John Chiang announced in a statement late Monday that the board had “not only successfully fought back misguided efforts to lift CalPERS’s 16-year-old ban,” but also now prevented outside partners from making such investments.

“Generations of Californians will reap the health, economic and ethical benefits of today’s bold decision,” Chiang said.

(Reporting by Robin Respaut in San Francisco; Editing by Lisa Shumaker)

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