NEW YORK (Reuters) - A proposed California law banning pension funds from investing in buyout shops that have sold stakes to sovereign wealth funds could set a precedent that narrows investment options and returns for the funds, the head of Massachusetts’ state pension fund said on Monday.
Speaking at the Reuters Hedge Funds and Private Equity Summit in New York, Michael Travaglini, the executive director of Massachusetts’ Pension Reserves Investment Management Board (PRIM) said he was concerned about the growing trend of legislation that places economic limitations based on political causes.
“If over the next five years, you pass 15 different divestment bills, that impact on the fund in our investible universe is significantly larger,” Travaglini said.
The number of bills are going to go up, and our returns are going to go down, he added.
Several U.S. states, including Massachusetts, have passed divestment laws and pulled money out of stocks to protest killings in Sudan’s Darfur region. The U.S. government has accused Sudan of genocide, but Sudan has denied the charge.
The Massachusetts fund is one of the largest and most successful in the country, managing about $50.3 billion in assets.
Travaglini said his fund sold about $450 million worth of securities as a result of the Sudan divestment law.
“Selling $450 million of $50 billion won’t create a noticeable effect,” he said.
But such regulations could encourage more groups to lobby governments for a growing universe of causes, he added.
“There’s going to a be a line outside the statehouse with every person who thinks their cause is equally compelling,” he said.
“How do I decide from genocide to nuclear weapons to greenhouse gases to people who don’t want to be in casinos or liquor,” said Travaglini, the brother of Massachusetts Senate President Robert Travaglini.
In California, the Responsible Private Equity Investment Act bill is seeking to ban the California Public Employees Retirement System and the California State Teachers’ Retirement System, the two largest U.S. pension funds, from investing in private equity firms that have sold stakes to these sovereign funds.
Large buyout shops like Apollo Management LP, Blackstone Group LP (BX.N) and Carlyle Group CYL.UL have sold stakes to these vehicles, which are usually the investment vehicles of foreign governments.
Legislators have also recently grown concerned about the influx of foreign money into U.S. enterprises, from a potential buyout of communication equipment maker 3Com Corp COMS.O by Bain Capital and China’s Huawei Technologies HWT.UL on national security concerns, to the role of sovereign wealth funds.
(For summit blog: summitnotebook.reuters.com/)
Editing by Jeffrey Benkoe