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Pensions invest in terror?

| Thursday, May 10, 2012, 5:29 a.m.

Public pension fund managers are still reeling from a report claiming that $188 billion nationwide is invested by public retirement funds in companies that do business with terrorist nations.

The report by the Center for Security Policy, a Washington, D.C., think tank, suggested last month that pension funds like the mammoth state systems in Pennsylvania for retired educators and state employees are indirectly supporting terrorism.

The pension fund officials are furious.

They attacked the report on its methodology and the data. They fired back with letters to public officials. Pennsylvania Treasurer Barbara Hafer, who chairs the school employees' fund, labeled it "economic McCarthyism."

The report obviously struck a nerve.

To be fair, Pennsylvania's are no different than most major public pension funds across the nation.

What to do is a complex question. The pension funds say certain investments in terrorist regimes are not necessarily against the interests of the U.S. government. Those legal investments may represent a fraction of a company's overall business.

Understandably, pension officials abhor the notion of being linked to terrorism, even obliquely. But they say they have a fiduciary obligation to investors to get the best return possible. Fund officials say accurately the federal government does not provide a list of companies investing in terrorist regimes. Pulling out massive amounts of money from stocks linked to terrorist nations would hurt the funds, they argue.

The bottom line, they say, is they cannot be sure which companies have operations in these countries.

Indeed, the issue is far from black and white.

Yet, there is a huge element of risk associated with companies doing business in Iran or Syria.

That's something you never hear fund officials talk about. Would you invest your own money in a company with interests in shaky regimes, tinhorn dictators or militant Islamists?

The report was compiled with software developed by Conflict Securities Advisory Group - which sells its database to the Arizona state treasurer and New York City controller for screening investments. Pennsylvania opted not to buy it.

Pension officials went after the conflict securities company, noting that the center and the company share the same address in Washington. They've been next-door neighbors in an office building for three years. Critics also note that Roger Robinson, the president of the conflict securities group, is a fellow at the center.

There is "no formal association or affiliation" between the center and the conflict securities company, said Adam Pener, the company's chief operating officer. The center, a non-profit group, is a client, he said.

OK, they work together. Does it change the basic message?

There is no doubt that if big pension funds such as those in Pennsylvania, California, and New York used their combined leverage they could insist that their asset managers get a handle on investments in terrorist countries. They will be aided by a new federal law requiring companies to disclose such information to investors.

If instead of digging in their heels, they voiced unified opposition to this type of investment, they would scare the wits out of asset managers and gradually reduce the amount of money tied up in nations that support terrorism.

You mean to say that there aren't any better - or safer -- investments out there?

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