State Fund to Keep Israel Investments


The California Public Employees’ Retirement System
(CalPERS), the nation’s largest public pension fund, has decided to keep Israel
on its list of permissible foreign countries in which to invest, in spite of
campaigns spearheaded by groups on several University of California campuses
demanding that it divest itself of Israeli equity holdings.

At the Feb. 18 meeting of the CalPERS Board of
Administration, Israel was green-lighted for its 10th straight year as an
approved country for investment.

Reacting to calls for a CalPERS boycott of Israel, Byron
Tucker, a Los Angeles spokesman for Gov. Gray Davis, told The Journal this
week, “We will continue to stand side by side with our friends in Israel, both
in business and friendship. The people of Israel are going through tremendous
difficulties right now.”

“They live with daily unrest, violence and death,” Tucker
continued. “California will not abandon its friends in their time of need.”

Campus activist groups — led by Arabs in Students for
Justice in Palestine and Jews for a Free Palestine — had been gaining ground in
their campaign for divestment from Israel, to the point where the UCLA Daily
Bruin editorially endorsed divestment last July. This prompted a pro-Israel
backlash, headed up by the UC Justice Campaign (www.ucjustice.org).

The Legislature formally rejected divestment in a joint
Assembly-Senate resolution in September.

Until last month, Israel was the only Middle Eastern country
in which CalPERS was permitted to invest. Neighboring Jordan has now been added
to the list. Egypt was evaluated but did not make the cut.

In other action, the CalPERS board, which oversees a fund
with assets of approximately $131 billion, complied with its requirement to
report to the Legislature on equity holdings in companies that may have
benefited from slave labor during the Holocaust era.

“CalPERS is required to annually report to the Legislature,
under Chapter 216, Statute of 1999 (SB 1245, Hayden), on investment holdings in
companies that may owe compensation to victims of slave or forced labor during
World War II,” Mark Anson, chief investment officer, wrote in a Feb. 18 letter
to the secretary of the California Senate.

According to Anson, the CalPERS report contains “the latest
information on companies that includes precursor companies, subsidiaries and
affiliates identified as employing forced/slave labor during World War II. To
compile the report, CalPERS contracted with Investor Responsibility Research
Center (IRRC). The center provided research from multiple information sources
and supplied a list of companies with a potential Holocaust-era restitution
liability.

The majority of the companies on the IRRC list in which
CalPERS holds stock are headquartered in Germany, Japan, Austria and
Switzerland. However, a few major U.S. corporations appear on the list, too,
including Ford Motor Co., General Motors, Eastman Kodak, Honeywell, NCR and
Pitney Bowes.

Sacramento-based CalPERS spokesman Brad Pacheco told The
Journal that the pension fund, itself, had received no direct protests from
groups demanding that CalPERS divest itself from investments in Israel.

“Israel was evaluated as one of 27 emerging equity markets
and received a passing grade, along with 14 other countries,” Pacheco said.

The pension fund’s consultant, Santa Monica-based Wilshire
Associates, reviewed the emerging market countries against a variety of
financial factors, plus other considerations, such as transparency, political
stability and labor practices/standards. Israel was ranked in seventh place overall
on the list — a weighted result after combining its No. 1 ranking in market
analysis and No. 8 in “country factors.”

Israel could arguably make a case for being included in the
category of “developed country markets,” which comprises the similar economies
of Finland and Singapore and the recent entry of Greece.

“Israel certainly meets the criteria for a developed country,”
said Doron Abrahami, Israel’s economic attaché in Los Angeles. “In terms of GDP
per capita, Israel is ahead of Greece. On the other hand, there are certain
advantages to being defined as an emerging market.”

Israel was approved by CalPERS, while some of the world’s
largest economies were not — notably China, Russia and India. Not one country
in conflict with Israel — or even hostile to the Jewish State — qualified.
Among those receiving failing grades were Malaysia, Pakistan and Indonesia.

CalPERS has approximately $1.6 billion currently invested in
emerging markets, including $83.3 million in Israeli equities.

“After CalPERS sets the policy guidelines, we oversee but do
not make the actual investments,” Pacheco emphasized. “That is done by our
active managers: asset management companies and investment banks.”

Although Pacheco originally said that CalPERS invests only
in public equity markets outside of the United States, IVC-Online in Tel Aviv
told The Journal that CalPERS has invested in six of Israel’s leading venture
capital funds through East Coast-based private equity manager Grove Street
Partners.