Girard Miller is the Public Money columnist for GOVERNING and a senior strategist at the PFM Group.E-mail: firstname.lastname@example.org
State politicians have returned to the slippery slopes of social investing and pension divestment. In the 1980s, South Africa was the target. Last year, it was Sudan, followed quickly by Iran, and now "all terrorist nations" are on blacklists in some states.
Policy makers should be skeptical about the effectiveness of using pension portfolios to make political or social statements--as well- intended as these may be. Too often, the policies lead directly to diminished returns on investment.
To minimize these fiscal impacts, we need model state pension divestment legislation language. For example:
Second, pension funds should be allowed to short-sell and use derivatives that effectively accomplish the same economic result as selling specific stocks from their portfolios. These "synthetic global divestment" strategies would save taxpayers' money and allow the various mainstream active portfolio managers to do the job they were hired to perform.
These ground rules would eliminate many negatives, provide appropriate tools to pension managers and put a price tag on these bills as they roll through legislatures.
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