Russia divestment promises largely unfulfilled

BOSTON — Nearly two years after Massachusetts moved to strip the state’s retirement fund of Russian-tied stocks and other holdings in response to its war in Ukraine, that pledge remains largely unfulfilled.

Following Russia’s invasion of Ukraine in early 2022, state lawmakers approved a $1.6 billion bipartisan supplemental spending bill that called for divesting the state’s pension fund of an estimated $140 million in investments tied to the country. Then-Gov. Charlie Baker signed the bill, as well as an executive order directing executive branch agencies to conduct a review of state contracts to determine if there are any ties to Russian businesses that could be severed.

Baker’s directive also called on independent agencies, public colleges and universities, and other constitutional offices to adopt similar policies.

At the time, state leaders touted the move to pull out those investments was a small, but meaningful, way of expressing outrage over the unprovoked war, and showing solidarity with the Ukrainian people’s fight against Russian President Vladimir Putin.

But nearly two years after the much publicized move, little has changed. The state’s pension fund still has an estimated $140 million in investments tied to Russia, according to Treasurer Deb Goldberg, whose office oversees the retirement system.

In a recent report to House and Senate clerks, the Massachusetts Pension Reserves Investment Management said the pension fund still has millions of shares tied to Russian entities in its investment portfolio.

“With markets at PRIM’s investment managers’ disposal being suspended from trading in the Russian securities and markets, our investment managers have been unable to liquidate out of the majority of positions,” PRIM’s executive director and chief investment officer Michael G. Trotsky wrote in the report. “They continue to monitor the situation.”

The data shows retirement fund managers have been able to divest more than 1 million shares in Russian investments since July 2022, including shares in Sberbank PJSC, Russia’s largest bank, and retail giant Magnit.

State pension officials said the remaining shares tied to restricted Russian assets are essentially worthless as of Dec. 31, with a market value of zero.

The PRIM reports also said investment managers with indirect holdings of restricted securities “have not removed restricted companies from their funds nor have these managers created similar actively managed funds which exclude these restricted securities.”

But Massachusetts isn’t alone. Other states that took steps in 2022 to have their public employee pension funds divest their holdings from Russian stocks or cease any new investments into those entities have also made little progress to fulfill those pledges, according to pension fund groups.

Pension fund experts say the global reaction to Russia’s invasion of Ukraine two years ago cut off much of its economy from the rest of the world.

But that has made it nearly impossible to move ahead with pledges of divestment by state retirement systems, university endowments and other public-sector holdings — as well as private investments like those in 401(k) accounts.

Alex Brown, research manager at the National Association of State Retirement Administrators, said while many pension funds want to get out of Russian investments, it’s just not realistic to sell in the current environment.

“The point wasn’t to engage in a fire sale of these assets, but rather to systematically identify opportunities to sell their Russian holdings in the most prudent manner,” he said. “It has to be a practical time to sell, but you also want to do it prudently.”

Brown noted that collectively Russian investments account for only a “tiny fraction” of the more than $5 trillion value of state and local retirement funds. Much of the money was invested in Russian government bonds, oil and coal companies as part of emerging-markets index funds, experts say.

Political observers also note that many investments in Russia purchased before the war are now almost worthless or substantially depreciated in value. That’s raised questions about whether divesting those funds is even necessary.

Meanwhile, the Kremlin has also rewritten rules governing foreign ownership of Russian company shares in response to U.S. sanctions, which analysts say has triggered confusion among investors and increased their risks of heavy losses from holdings now stranded in the country.

The Biden administration imposed a fresh slate of sanctions on more than 500 targets on Friday — the largest to date — in response to the death of opposition figure Alexey Navalny and on the eve of Russia’s two-year war in Ukraine.

The United States and its allies have imposed sanctions on thousands of Russian targets in the past two years.

“Two years ago, he tried to wipe Ukraine off the map,” Biden said in a statement. “If Putin does not pay the price for his death and destruction, he will keep going.”