US: Calstrs May Remove Ban on Tobacco Stocks

Pension Fund Says It Is Missing Out On Strong Returns
Publisher Name: 
The New York Times

In a move that could reverberate throughout the fund
industry, the nation's second-largest pension fund is considering
lifting a nearly eight-year ban on tobacco investments.

The board of the California State Teachers' Retirement
System, known as Calstrs, began deliberating on Wednesday about adding
the stocks of tobacco companies to the fund's $169 billion portfolio.

Unlike some socially responsible funds that banned
tobacco companies for health-related reasons, Calstrs said it divested
in 2000 because numerous lawsuits against the industry and the specter
of government regulation made the stocks too risky. It now says those
risks have diminished.

Calstrs also indicated that missing out on a "market
weighting" in tobacco stocks these past several years cost the fund
more than $1 billion in lost investment returns.

Calstrs wouldn't be the first pension fund to reverse
a ban on tobacco shares. The Florida Retirement System voted in 2001 to
overturn a similar ban after divesting from tobacco stocks in 1997.
Still, Calstrs's decision "will be watched closely," said Amy Borrus,
deputy director at the Council of Institutional Investors. "At a time
when pension funds are under tremendous pressure to boost returns, they
are rethinking the costs of divesting from a whole class of shares."

The California Public Employees' Retirement System,
the nation's largest pension fund with about $245 billion in assets,
also has a ban on tobacco stocks and is "monitoring the Calstrs
situation," said a spokesman. The New York City Employees' Retirement
System, with $40 billion, maintains a ban on tobacco; it had no comment.

It isn't clear how much money Calstrs would invest in
tobacco companies. But the fund has a $65 billion U.S. stock portfolio,
and a commonly used U.S. benchmark index has a 1.7% weighting for
tobacco shares.

Write to Craig Karmin at craig.karmin@wsj.com

AMP Section Name:Tobacco
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