Hahn Seeks Divestiture of County Pension Fund

Los Angeles County Supervisor Kenneth Hahn called Friday for full divestiture of $660 million in county pension funds from companies doing business in South Africa. But members of the independent board overseeing the $5-billion fund said that such a sweeping move is highly unlikely.

Those same members of the county’s Board of Investments said, however, that they might be inclined to support a limited divestiture plan.

Hahn said he would ask his fellow supervisors Tuesday to urge the nine-member board to begin divestiture “as soon as possible” as a protest against South Africa’s apartheid policies. Hahn said, however, that he recognized that any divestiture must preserve the integrity of the $5-billion pension fund--the state’s third largest.

‘Meaningless Exercise’

His proposal--which he said would be in the form of a recommendation to the investment panel--was met immediately by outright opposition from conservative Supervisors Pete Schabarum and Mike Antonovich, who visited South Africa last year at different times as guests of the Pretoria government.

In a statement issued by his office, Schabarum said that while he believes the policy of apartheid is “morally wrong,” Hahn’s proposal is “a shallow and meaningless political exercise.”

Schabarum also voiced the belief that investment board members could be held personally liable for financial losses to the pension fund. That question is being studied by the county counsel.

Antonovich said that divestiture “could jeopardize the security of the United States and Israel, our only democratic ally in the Mideast, an ally that depends on South Africa for defense tools and strategic supplies.”

Antonovich added that American firms have spent millions of dollars in recent years to help South Africa’s black population.

Supervisors Deane Dana and Ed Edelman, who could supply Hahn with the necessary votes to approve the recommendation to the investment panel, were unavailable for comment, and aides would not predict how they might react to the divestiture idea.

Several investment board members contacted by The Times, meanwhile, predicted that any divestiture would be limited to about 160 mostly small American companies operating in South Africa that are not adhering to equal employment principles involving their nonwhite workers. Such a limited divestiture would involve only about $145 million of the pension fund’s $4-billion stock and bond portfolio, county officials said.

Investment board member Bondie Gambrell, a real estate investor appointed to the panel by Hahn, said he believes that there are enough votes on the board for a limited divestiture.

‘Good First Step’

“I don’t think that goes far enough, but I would think that would be a good first step,” Gambrell said.

Board member Cody Ferguson, a captain in the Los Angeles County Fire Department, said he is not convinced that any divestiture would be legal. Ferguson said he fears that tying the hands of the investment board members could violate their fiduciary responsibilities to the pension fund.

Hahn’s proposal came one day after Los Angeles City Fire and Police Pension Fund commissioners ordered a divestiture of $350 million in stocks and bonds from American firms with South African operations.

County Treasurer-Tax Collector Richard Dixon, a voting member of the investments board, said the nine-member panel generally views South Africa’s racial policies as “abhorrent” but is awaiting legal advice on whether divestiture would violate state laws governing public pension funds.

In addition to Dixon, the Board of Investments includes four members appointed by the Board of Supervisors and four members elected by the Los Angeles County Employees Retirement Assn. The association has about 70,000 active and 30,000 retired members.

Financial Analysis

A preliminary financial analysis requested by the investment board indicated that full divestiture, such as proposed by Hahn, could harm the earning power of the county’s pension funds.

In a June 18 report to Dixon, Chicago-based investment counsel Stein Roe & Farnham warned that full divestiture “would significantly reduce the investment opportunity currently available to the LACERA portfolio.”

Stein Roe’s Michael S. Carey, added, however, that if the investment board limited divestiture to companies that had not agreed to the so-called Sullivan principles, then the pension funds probably would be safe. The Sullivan principles, created by the Rev. Leon Sullivan of Philadelphia, seek to extract promises from American corporations to treat their nonwhite employees in South Africa equally to whites without regard to that government’s official apartheid policies.

The pension fund owns stock worth $660 million in 330 American corporations that do business in South Africa. Just over half the corporations have signed the Sullivan principles, Dixon said. They account for $515 million of the fund’s investments, he added.