Kentucky public pensions hold $62 million in Russian investments, officials say
Kentucky has about $62 million invested in Russia through its major public pension funds, which cover several hundred thousand people, officials told an oversight board on Monday.
Or at least, the holdings recently were valued at about $62 million. With the Russian stock market temporarily closed, the ruble crashing and Russia’s economy in ruins due to Western sanctions over its invasion of Ukraine, nobody can be sure what anything is worth over there right now, the officials said.
Members of the Public Pension Oversight Board had questions about Russian investments following an explosion of rumors on social media last week concerning the Teachers’ Retirement System of Kentucky and Russia’s Sberbank.
The online rumors — which were incorrect — claimed that TRS was a top shareholder in Sberbank last week with a $15 million stake, most of which got wiped out when the bank’s valuation all but collapsed. Among those spreading the rumor was U.S. Rep. Thomas Massie, R-Ky., who added on Twitter, “Buy the ticket, take the ride.”
Many teachers called TRS in Frankfort, worried about the solvency of their pensions, said Beau Barnes, the agency’s general counsel.
In fact, TRS’ outside investment manager sold the pension fund’s Sberbank shares Feb. 23 in response to Western sanctions for about $12 million, netting the fund a small profit of about $200,000 once about $3 million in dividends were taken into account, Barnes told the oversight board. TRS acquired its Sberbank shares in March 2017.
The money involved was minuscule compared to TRS’ total assets of $26 billion, Barnes said.
“TRS is not now nor has it ever been the No. 2 shareholder in Sberbank,” Barnes said. “Not even close.”
TRS continues to hold investments in Russia through the funds of two outside companies, with a valuation of about $30 million as of Dec. 31, Barnes said.
Asked why TRS owns anything in Russia, Barnes said international portfolios are a common way for pension funds to diversify investments on a global scale.
Investment advisors often arrange for their clients to buy into large international portfolios with interests in all parts of the world, including Russia, which only recently became the target of Western sanctions, he said.
“In fact, a lot of folks asking us, ‘Why Russia?’ may not realize that if they have a retirement plan with their employer, if they have a 401k or if they have a mutual fund ... and they’re invested in one of their international portfolios, they probably have some very tiny exposure to Russia, too, OK?” Barnes said.
“The only way that we could avoid that Russian investment is to divest from that entire fund, which has all that good stuff in there that we like, just to get rid of this tiny bit in there that is Russian, that we don’t like,” Barnes said. “We probably couldn’t even get any value for it even if we wanted to sell it right now because the situation with Russia right now is so much in turmoil.”
State Rep. Jim DuPlessis, R-Elizabethtown, who sits on the oversight board, said he wanted to remind the public that the 11-member TRS Board of Trustees makes investment decisions for teachers’ pension funds, with seven of the 11 members being elected by active and retired educators.
“It wasn’t the state that decided to invest in Sberbank, it was your board,” DuPlessis told Barnes. “Is that correct, yes or no?”
“Yes, the board ultimately approves, but it is a very detailed process with a lot of due diligence and investigation with our investment firms,” Barnes said.
The state’s other major pension agency, the Kentucky Public Pensions Authority, has about $32 million in Russia through investment managers Lazard and Franklin Templeton Investments, KPPA executive director David Eager told the oversight panel. That is 0.15 percent of KPPA’s total assets, Eager said.
The future of Russian investments has been placed on the agendas of the investment committees of the systems that oversee state and local government pension funds, Eager said. Those committees will be guided by laws that require them to act in the best interests of the investment returns, he said.
“Unfortunately, we can’t be ... socially investing for any cause, and this is probably the greatest cause that we’ve seen in our lifetime. But we can’t make a decision solely based upon that,” Eager said. “But in light of the market collapse, in light of the difficulty the Russian economy is gonna have, I can’t imagine making a strong case for investing in Russia at this time.”
This story was originally published March 7, 2022 at 4:27 PM.
