Pension funds grapple with end to sanctions


Because of an editing error in an article in yesterday's Business section on pension funds, comments by Bill Moses referring to the likely position of companies following the lifting of U.S. sanctions on South Africa were mistakingly applied to the likely activities of a Maryland fund.

NEW YORK -- Ending key federal sanctions against South Africa is likely to begin a new, complex chapter for the $734 billion public pension industry as legislators and trustees are forced once again to weigh conflicting priorities.

Because of their growing size and clout, pension funds are finding themselves increasingly caught between the classic mission of a pension -- providing a return to a beneficiary -- and the political implications of where money is invested.

In Maryland, the law prohibiting the major public employee pension fund from investing in companies doing business in South Africa passed in 1985 and expired in 1989. Since then, the pension fund has acted as if the law has remained in force -- an increasingly easy task because companies were withdrawing from South Africa.

Between the end of 1984 and the end of March 1991, the percentage of the Standard & Poor's index capitalization that included companies with South African operations shrank by two-thirds, from 45.4 percent to 14.9 percent, according to New England Pension Consulting.

With Wednesday's decision by President Bush, however, that could reverse.

"Many of the companies we invest in may start doing business in South Africa," said Herbert Dyer, executive director of the $13 billion Maryland state retirement and pension systems. "We will either have to get relief [from the policy excluding South African investment] or have a more difficult problem finding stocks to invest in."

The 15 trustees of the Maryland fund will begin discussing the issue this month.

"I don't think you will see any rush," said Bill Moses, an analyst at the Investor Responsibility Research Center Inc. in Washington. "Companies are loath to lose business from states and cities like Massachusetts, New York, Los Angeles and Baltimore for a risky venture abroad."

About 140 municipalities in the United States have regulations that preclude purchases of everything from paper to computers to cars from companies with South African operations.

But many companies don't sell directly to governments, and South Africa, despite its unstable politics, has abundant natural resources that with the federal government's decision may now prove irresistible.

Moreover, even if no other companies enter South Africa, the fact that the federal government has shifted its policy may put pressure on funds, if only because policies barring investment in firms with South African ties has been costly.

New Jersey reckoned that a three-year divestment program concluding in 1988 cost the state's pension funds $50 million for additional transactions and in excess of $25 million a year in lost investment income, said Roland Machold, director of the division of investments for the state. Such losses, he added, have continued.

Most corporate pension fund managers are required by law to invest solely in the interest of beneficiaries, and they have ignored the divestiture movement. "They wouldn't even look at whether it [a potential investment] is in South Africa," said

Michael Clowes, editor of Pensions & Investment. "That's not even an issue. They merely try to weigh expected risk and reward."

But the investment decision may not be as simple as dollars and cents for public funds. South African domestic policies remain deeply offensive to many people, and there is continued support for using economic leverage against the country. Politicians in New York City, with $40 billion in five pension funds, have said the federal rule change is unlikely to have any impact on a strict policy barring investment in companies with South African ties. Similarly, Mr. Machold said he believes the New Jersey legislature, which mandates non-South African investment by the $34 billion state pensions, perceives any change in policy to be "premature."

Indeed, Richard Knight, spokesman for the Africa Fund, an anti-apartheid organization in New York, said, "I have been receiving calls from people throughout the country, and they all intend to maintain pressure on local governments" to sustain anti-South Africa policies. And at a local level, he believes, such actions will be more effective than they were in Washington.

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