SB 5 Would Protect Louisianans' Financial Security, Despite Misleading Actuarial Note

Blog Articles · Apr 24, 2024 · Budget and Spending

Louisiana Senate Bill 5 (SB 5) would ensure that Louisiana pension funds are managed based solely on maximizing financial returns for state retirees. Obviously, focusing on financial returns instead of environmental goals is likely to increase financial returns. But the bill’s opponents have latched on to a recent legislative actuarial note that suggests the opposite. In truly Orwellian fashion, the note speculates that increasing focus on financial returns could result in decreased financial returns, and pulls numbers out of thin air to justify its position.

Hundreds of millions of dollars of Louisiana public pension funds are being managed by large asset managers—such as Goldman Sachs Asset Management and Vista Equity—who have foolishly committed to put a net-zero environmental agenda ahead of financial returns for investors. Private investors can choose to have their money managed to promote ideological goals, but such goals have no place in investing public pension funds.

For example, the Louisiana State Employees’ Retirement System (LASERS) entrusts more than $400 million in pension funds to Vista Equity’s private equity investments. Vista is a member of the Net Zero Asset Managers initiative (NZAM), and as such, has committed to carry out an “ambition for all assets under management to achieve net zero emissions by 2050 or sooner.” Lest there be any doubt about whether Vista’s net-zero commitments include Louisiana’s $400 million in private equity investments, Vista has proudly informed NZAM that “Vista has currently committed USD $89.1 billion to be managed in line with net zero, covering 100% of [its] private equity … portfolios.”

These net-zero ideological commitments have real-world consequences and change how investments are managed and used. Goldman Sachs Asset Management (Goldman) manages over $300 million for LASERS. In 2022, Goldman used shares it held to vote in favor of a shareholder proposal that pushed Boeing to reduce its greenhouse gas emissions and cited to activist group Climate Action 100+ (of which Goldman is a member). This proposal had nothing to do with financial benefits to shareholders or Boeing’s core mission, yet Goldman used assets entrusted to it to insist that Boeing focus on these non-financial issues.

Several other states have already passed similar bills to SB 5. For example, last year alone similar bills were passed by Kansas (HB 2100), Arkansas (HB 1253), Kentucky (HB 236), Indiana (HB 1008), and West Virginia (HB 2862). The actuarial note does not consider the experiences of any of those states. Instead, the note speculates that SB 5’s impact could “range from several million dollars annually up to several hundred million dollars,” and then presents an unsupported straw-man table that “illustrates the approximate impact of a 1.00% decrease in the assumed investment return for the four State retirement systems,” and notes that such a decrease would be billions of dollars.

The note never claims that a 1% decrease would result. It merely presents the table as an “illustrat[ion],” but that illustration is misleading for multiple reasons. First, although the table assumes large-scale switching rather than compliance, most of the funds currently managed by these systems are managed by managers who would simply comply with the bill. For example, LASERS’ domestic equity portfolio of over $4.5 billion (its largest portfolio) is nearly all made up of index funds managed by LASERS. Second, even assuming that switches would occur, 1.00% would be an enormous change in investment return from switching managers, as the difference between fund managers typically is measured in a few basis points (0.01% per point). The note makes no effort to justify this truly enormous number. Third, the note completely ignores the much more likely scenario that returns will increase when managers are solely focused on financial returns. It is far more likely that annual returns will increase by 1.00% than that they will decrease by 1.00%. Yet the note completely ignores that possibility, and instead refers only to the possibility of “decreased investment returns” and a “reduction in investment returns.”

At best, the note’s “illustration” demonstrates that Louisiana’s state retirement systems manage an enormous amount of money and that getting the best possible return on that money is vitally important. That point is an argument for SB 5, which would ensure that the asset managers handling those funds are focused on financial returns and not on other priorities.

If there is genuine concern that increasing the focus on financial returns will somehow decrease those returns, legislators can follow the lead of several other states and simply add an exception that would ensure the bill does not apply if it would be economically impracticable. In fact, the bill already contains such an exception for the selection of proxy advisors.

SB 5 is a common-sense solution to a real problem, and a focus on financial returns rather than environmental activism is likely to increase returns for Louisiana’s retirees. Legislators should follow the lead of other nearby states and ensure that Louisiana’s public pension assets are managed solely for the benefit of Louisiana’s retirees.