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Public employee retirement funds collectively hold almost $2 trillion in assets. Should the government and union officials entrusted with managing this money make investment decisions guided by their political views? Should personal morality and ideology, which vary dramatically across the country, influence public investments, including Social Security?
Traditionally, public investments have been managed according to strict fiduciary principles designed to protect the retirement security of America’s teachers, fire fighters, police officers, and other public workers. That tradition is now under assault. In some state and local governments, politicians responsible for overseeing these funds are embracing highly controversial and potentially risky investment criteria known as “socially responsible investing.” Pension Fund Politics examines this controversial trend. An ideologically diverse group of scholars address the legal, political, and fiduciary consequences of injecting social and ethical criteria into the management of pension funds.
Certainly, as part of their fiduciary mandate to maximize investment returns for their beneficiaries, pension-fund trustees have a duty to press for changes in corporate behavior that could result in better returns for their pension holders. But judging by the actions of many activists now running multi-billion dollar pension funds, using social investing under the guise of increasing “shareholder value” threatens to undermine the financial security of retirees who have no say in these highly politicized investment decisions. The authors argue that social investing, by both the political left and right, frequently ends up hurting the very people—particularly the economically disadvantaged—that it is supposed to help. Pension funds are being dragged into treacherous waters where political grandstanding or moral righteousness threatens clear financial mandates. In many instances, social investing amounts to little more than ideologically driven gambling with other people’s money.
Jon H. Entine is a scholar in residence at Miami University (Ohio) and an adjunct fellow at the American Enterprise Institute.
Table of Contents
1. The Politicization of Public Investments, Jon Entine
The Problematic History of Social Investing of Public Pension Funds
The Essays
Notes
2. Social Investing: Pension Plans Should Just Say "No," Alicia H. Munnell and
Annika Sunden
What Is Social Investing and How Much Is Going On?
Prevalence of Various Approaches to Social Investing
How Does Social Investing Affect Companies?
The Textbook Argument
Counterexamples
South African Boycott
How Does Social Investing Affect Sharehold Returns?
Theory
Evidence
Should Pension Plans Engaged in Social Investing?
Public Pensions
Private Pensions
Conclusion
Notes
3. Why Social Investing Threatens Public Pension Funds, Charitable Trusts, and the Social Security Trust Fund, Chalres E. Rounds Jr.
Introduction
Trustees and Social Investment
State Pension Funds
Social Security
Conclusion
Notes
4. The Strategic Use of Socially Responsible Investing, Jarol B. Manheim
Balancing the Corporate Books
Power Structure Analysis: A Pathology of Stakeholder Relationships
Anticorporate Activists and Public Pension Funds
Proxy Wars and "Social Networks"
Conclusion
Notes
About the Authors
Index
