Calpers to divest in 4 Southeast Asian nations

By Michael Kahn

02/20/2002

SAN FRANCISCO, Feb 20 (Reuters) - Calpers, the largest U.S. pension fund, will sell off its assets in the Philippines, Thailand, Indonesia and Malaysia, saying those countries do not meet tough new standards - that now include human rights - for emerging markets investments. The decision marked the first time the California Public Employees' Retirement System has applied criteria linking investment decisions in emerging markets to social issues for the more than $151 billion fund. "This is a living document subject to on-going change," William Crist, President of Calpers Board of Administration said in a statement on Wednesday. "We will reevaluate our model as the emerging markets change
and develop over time."

The measure, adopted by Calpers' investment committee on a 9-3 vote on Tuesday, affects about $1 billion in emerging market holdings, and analysts said it could spur pension plans across the United States to consider human rights when investing.

By barring investment in the four southeast Asian countries, Calpers effectively closed the door on a $50 billion market representing about 8 percent of the value of emerging markets open to outsiders, according to the S&P IFCI Index, an international benchmark for such investments. The four Southeast Asian countries now off limits to Calpers join Jordan, India, Egypt, China, Colombia, Pakistan, Venezuela, Sri Lanka, Morocco and Russia, all of which were already on the fund's no-go list for financial reasons.

Calpers has long conducted regular reviews to assess its investments in developing countries. In the past, however, the main factors were financial ones such as a country's market liquidity or legal protections for investors. But now Calpers will give equal weight to factors such as political stability and protection of civil liberties as a way to signal to certain countries they need to clean up their act if they want to see foreign investment, said the fund's spokesman Brad Pacheco. Calpers board members have also said the stricter guidelines will pay off for its 1.2 million members because the pension fund will only be putting its money in more stable countries.

 

 

According to the report submitted to Calpers by Wilshire Associates, the pension fund's consultant, the Philippines appeared to miss the list for financial reasons, while Malaysia and Indonesia did poorly on human rights considerations. Thailand received a more mixed score, but still failed to make the grade.

ELIGIBLE LIST OPEN TO REVISION
Calpers also said the list would be revised periodically. This year, for example, Poland and Hungary joined the countries eligible for investment.

They join Argentina, South Korea, Taiwan, Chile, Israel, Czech Republic, Peru, South Africa, Brazil, Mexico and Turkey as the other acceptable emerging markets. Pacheco added he did not know the value of Calpers assets in the four Southeast Asian countries, but said they they would be slowly divested over an unspecified period of time. "We are going to continue to revaluate the emerging markets as they emerge and develop," Pacheco said. "This document will change over time." The policy of looking at human rights when making investment choices comes as Calpers moves to drop the passive approach it has followed for the last 13 years for foreign investments. Last month Calpers hired New York-based AllianceBernstein, Capital Guardian Trust Company and Dimensional Fund Advisors of California as well as London's Genesis Asset Managers to manage its emerging markets assets.

Patrick McGurn, director of corporate programs at Institutional
Shareholder Services, said Calpers' new guidelines could sway other U.S. public pension funds to follow suit. The tougher criteria also reflect investor wariness in emerging markets following the Asian financial crisis and the meltdown of Russia's economy during the late 1990s. "It is an interesting approach," said McGurn, whose Rockville, Maryland-based firm advises large shareholders including pension funds. "It would not be surprising to see other pension funds to consider doing the same." The largest of the markets now barred to Calpers is Malaysia, which represents 4.6 percent of the IFCI Index, Thailand and Indonesia represent just over 1 percent each. The Philippines is less than 1 percent of the index by investable market capitalization, Standard and Poor's said.

Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved.