DWP Pension Managers Reject S. Africa Divestiture

The managers of a pension fund for Los Angeles City Department of Water and Power workers departed from the city’s divestiture policy Thursday and rejected a proposal that would have gradually purged $139 million in South African-related investments from their billion-dollar retirement fund.

A majority of the seven-member Board of Administration of the Water and Power Employees Retirement Plan voted in favor of ridding the pension fund of investments in companies that do business in racially segregated South Africa.

But with the support of at least one of the three employee representatives on the board needed to pass the proposal, the divestiture policy failed when all three employee members--who are elected by the 10,500 employees in the plan--turned it down.

The vote came after more than a year of sporadic debate among the sharply divided panel members, and marked the first time that a retirement board overseeing city pension funds had gone against a general divestiture policy pushed by Mayor Tom Bradley. Managers of the two other pension funds for city employees have already agreed to divestiture in South Africa-connected companies.

The outcome of the vote also went against sentiment in favor of divestiture at the state level. Final legislative passage was given Wednesday to a landmark state bill that will lead to the sale of $11.4 billion in state investments in firms operating in South Africa.

Vincent J. Foley, president of the DWP retirement plan board and one of the members who voted against divestiture, said he and other critics of the divestiture policy objected to the use of “non-economic” factors such as the troubled South African political situation in determining where to invest retirement funds.

“We take our fiduciary responsibilities very seriously, and we don’t want politics to interfere with that,” Foley said, adding, however, that the board will continue to consider other proposals that could still lead to a shift from South African investments.

But Foley said he drew the line at what he viewed as using social issues such as apartheid as an investment barometer, and stressed that the board would concentrate on implementing a policy that “speaks to the economic welfare of the retirement plan.”

‘Policy Is Dead’

“A divestiture policy is dead,” Foley said. “A divestment policy may not be.”

In addition to current employees, the DWP plan benefits 8,000 retirees. About $139.1 million of the fund’s $1.2 billion portfolio involves stocks and bonds in companies that are linked to South Africa, according to Rich Goss, retirement plan manager.

Goss said that over the past year, the percentage of investments by the board that are related to South Africa has dropped as companies have pulled out of that country.

But Walter Zelman, a board member who had pressed for divestiture, said the rejected plan was still needed to make a necessary statement about the repugnance of apartheid. At the same time, he said that the board’s primary responsibility would have remained the protection of both participants and beneficiaries of the retirement fund.

‘A Positive Step’

“This wasn’t an aggressive divestiture policy, but it was a positive step,” Zelman said. “We’ll have to see in further discussions whether a : we can agree on anything at all, and b : whether it would be meaningful enough to pass it.”

Under the proposal presented by department general manager and chief engineer Paul H. Lane, the retirement board would have enacted its divestiture policy in phases.

Within six months after adopting the plan, the board would have notified companies that do business in South Africa that the board may have to sell those holdings. Within a year, the board would have sold its assets of South Africa-related companies judged to be providers of military hardware.

And within five years, the board would have sold its assets of all South African-related companies in its investment portfolio.

That policy would have been similar to those adopted last year by the Los Angeles City Employees’ Retirement Systems board and the city’s police and fire pension commissioners. Those boards control more than $600 million in investments linked to South Africa. Under their respective timetables, some of those investments were to have been sold by now, but delays in choosing private attorneys and naming outside investment advisers have slowed the process.

‘I Am Enraged’

Councilman Zev Yaroslavsky, who chairs the Finance and Revenue Committee that is reviewing the city’s pension systems and their divestiture policies, said he is disappointed at the pace of divestiture. But he added that while those pension systems are moving in the right direction, the water and power retirement board has taken a backward step.

“I am enraged by their action,” Yaroslavsky said Thursday.

“It was very disappointing. It’s sending the wrong signal, and it is not in step with the city leadership. It’s a sad day for the Department of Water and Power, and it will be a black mark for the department for years to come,” he added.

Although the council has no power over the actions of the retirement board, Yaroslavsky said that future requests from the water and power department for rate increases or additional funding could meet with some opposition in the City Council in light of Thursday’s vote.

‘Join in This Fight’

Mayor Bradley, whose appointees on the board--Zelman and Carol Wheeler--had backed the divestiture position, said Thursday he would not try to change the minds of the dissenting employee representatives, but he added that “I am not going to give up on this issue. I want everybody to join in this fight.”

In addition to Zelman and Wheeler, management representatives Lane and Norman Powers, the department’s chief financial officer, voted for divestiture. Joining Foley in opposition were employee representatives Edward Leon Jr. and Shigeo Yuge.