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The challenges of divesting pension funds from Russia

SCOTT DETROW, HOST:

As U.S. officials broadly condemn Russia's invasion of Ukraine, there's growing pressure to divest public pension systems from Russian investment funds. But getting that money out is often easier said than done. From member station WKAR in Lansing, Mich., Sarah Lehr reports.

SARAH LEHR, BYLINE: Officials in about half of states have proposed or passed policies calling for Russian divestments from public pensions. But as Emily Brock of the Government Finance Officers Association explains, a pledge to divest isn't the end of the story.

EMILY BROCK: One of the greatest misconceptions is that when you say you divest, then you divest (laughter). The policy action was swift, but the action to actually divest may take some time.

LEHR: For one thing, Moscow's stock exchange has been mostly closed since the war started, leaving sellers without a direct off-ramp. In Michigan, a state retirement board voted at the governor's urging to drop investments connected to Russia or Russian ally Belarus. The resolution came with the caveat that the process would start as soon as practicable once market conditions allow. Experts say finding buyers might be a significant challenge, and that likely means selling at a loss.

Before the invasion, less than a 10th of 1% of Michigan's nearly $100 billion pension portfolio was tied to Russia. Now those holdings are worth even less as the value of Russia's ruble plummets amid widespread sanctions. North Carolina's treasurer, Dale Folwell, wants Congress to change federal law to allow states to seize Russian assets by suing over investment losses. He says, at this point, it wouldn't be practical for his state to offload millions of dollars in Russian holdings, in part because many of those assets are pooled with others in so-called index funds.

DALE FOLWELL: We're handcuffed. Folks like myself don't pick and choose which stocks are in the index fund. The manager, the custodian of the index fund determines that.

LEHR: Keith Brainard is with the National Association of State Retirement Administrators and says such calls for divestment are nothing new. Some governments pulled their money from South Africa in the '80s to protest apartheid. Other states have policies prohibiting pension investments in Sudan or Iran. But Brainard says pension managers have to balance ethical goals with legal obligations to invest wisely.

KEITH BRAINARD: Which is not to engage in a fire sale, but rather to systematically identify opportunities to sell their Russian holdings as opportunities develop.

LEHR: Still, Brainard notes that Russian assets comprise a tiny fraction of the more than $5 trillion in local and statewide public pension systems across the country.

BRAINARD: A typical public pension retiree would likely never notice the effect of divesting Russian assets.

LEHR: For Andriy Bodnaruk, who teaches finance at the University of Illinois Chicago, calls to divest from Russia are personal. He's from Ukraine and also sits on a board overseeing retirement savings for public university employees. His board is weighing its options as it watches bills pending in the state legislature that would require Illinois pension systems to sever ties with Russia, even though holdings in Russia are relatively small. Bodnaruk says public divestment sends a message, though he acknowledges those effects won't be immediate.

ANDRIY BODNARUK: We need to understand that it's not going to stop fighting on the ground today, tomorrow or in a week from now.

LEHR: He and others hope that divestment, coupled with other financial penalties, will work to exert pressure on Russia in the longer term. For NPR News, I'm Sarah Lehr in Lansing. Transcript provided by NPR, Copyright NPR.