Pension Fund Stocks Not All ‘Good Guys’ : Investments: The county portfolio has a profitable track record but is criticized for including some polluters, tobacco companies and firms with ties to South Africa.
Orange County employees’ $1.5-billion retirement fund has amassed a broad portfolio of investments, ringing up impressive returns but also buying shares in some of the nation’s biggest polluters, defense contractors, tobacco distributors and firms with ties to South Africa.
“It looks to me like Orange County is mirroring what a lot of large investors do, which is buy just about anything,” said Trex Proffitt, an analyst with the Washington-based Investor Responsibility Research Center. “They don’t seem to have any restrictions.”
The nine-member board that oversees the Orange County Employees Retirement System has come under fire recently because of its travel policies and its accumulation of a $200-million surplus. In examining the retirement system’s portfolio, The Times on Monday asked Proffitt and several other investment analysts for their comments.
The portfolio shows a diverse collection of investments that has earned an impressive rate of return, with a mix of stocks, bonds, real estate and other holdings.
The retirement system owns half of a Chicago office park, $3.5 million in mortgage notes in a Mission Viejo shopping center, and $3.7 million worth of stock in one of the nation’s largest tobacco producers.
Those investments and hundreds of others have paid off: The retirement system last year earned a 15% rate of return, outperforming all other county pension funds in California, according to the state controller’s office.
And while some organizations may criticize what they consider the socially irresponsible way in which the retirement board invests its money, other investment analysts noted that the portfolio also includes its share of companies that receive high marks for social consciousness.
“Their portfolio is not that bad,” said Jerome L. Dodson, president of the Parnassus Fund, a San Francisco-based firm that specializes in ethical investing. “It has some bad guys in it, but they’ve got about the same number of good guys.”
Dodson was particularly critical of about a dozen investments, including American Home Products, a pharmaceutical company; Waste Management Inc., a waste-disposal firm, and Georgia-Pacific Corp., a timber-products company. But he gave high marks to an equal number, including the J.C. Penny Co. Inc., the department store chain, and Weyerhauser Co., a timber-products firm.
“Companies that have good social policies make good investments,” said Diane Bratcher, director of communications for the Interfaith Center on Corporate Responsibility, a coalition of 250 Protestant and Catholic church organizations. “We feel that investors like the Orange County system have a responsibility to address those policies.”
While acknowledging that they have not adopted social-investing guidelines, members of the Orange County retirement board argue that they have a more important responsibility.
“We feel a commitment to earn the best return for the system that we can,” said Patrick Brunner, chairman of the retirement board and its investment committee. “I don’t believe socialized investments would allow us to garner that kind of return.”
Although experts disagree on that point, some statistics tend to support Brunner’s contention. In the three years during which the state Public Employees Retirement System sold off its investments in companies with South African holdings, the system earned nearly $600 million less than it would have otherwise, according to a consultant to the system.
Brunner and other retirement board members also say that using the pension system’s portfolio to achieve social goals is a risky and subjective business.
“We have taken up the issue of social investments, like (South) Africa-free and greening-type investments,” Brunner said. “But we looked at all that and said, ‘If you start there, where do you end?’ Do we stay out of Ireland or the companies that are in some areas that some legislator has some personal prejudice against?”
Among the companies in the retirement system’s portfolio that were criticized by advocates of social investing:
* RJR Nabisco, British American Tobacco Industries, and the Philip Morris Cos. Inc., three of the nation’s largest tobacco and cigarette companies. Philip Morris also owns the Mission Viejo Co., a major South County developer;
* Texaco and Chevron Oil, two oil companies that jointly own a company called Cal-Tex Petroleum Corp., which has operations in South Africa. Roughly two dozen firms on the list of stock holdings have operations in or ties to South Africa, according to a list of firms that the state Public Employees Retirement System is prohibited from investing in.
* Waste Management Inc. and Browning Ferris Industries Inc., two waste-disposal companies that Proffitt said are considered “some of the country’s biggest polluters.”
* American Home Products, a pharmaceutical company that has been accused of misleading advertising. The Parnassus Fund lists American Home Products on its list of 10 unethical companies.
* General Motors and General Electric, two of the country’s biggest defense contractors.
While many socially conscious investors screen companies from their investment portfolios, others prefer to invest in a wider range of firms but use their stock holdings to press for change.
The New York City retirement system, for instance, has aggressively pressed shareholder resolutions calling on firms in which they invest to change management practices or take social action. In most cases, those resolutions do not pass, but they often shine a spotlight on a company’s behavior and sometimes help pressure the firm into changing, a spokeswoman for the system said.
The Orange County system has not used its investment leverage to do that.
Mary-Jean Hackwood, the administrator of the county pension system, said the issue has never come up in her four years at the helm.
“I’m sure they (the retirement board members) are aware of it,” she said. “They’re a very active board, as you can see.”
Times staff writer Mark Landsbaum contributed to this report.
County Pension Fund: Who Runs It, and How
The Orange County Employees Retirement System has come under close scrutiny in recent weeks after disclosures of extensive travel by the managers of the system and an auditor’s claim that its $200-million surplus is “embarrassingly large.” Here are some details about the retirement system and how it operates.
Question: Where does the retirement system get its funds?
Answer: Employees contribute from 5% to 10% of their paychecks, depending on their age when they were hired and other factors. The county pays about 10%. Neither employees nor the county pays into Social Security, as they do not participate in the federal program.
Q: How much does it cost the county to provide this benefit?
A: In the 12 months ending Dec. 31, 1990, the county paid $84.4 million into the retirement fund, while employees contributed $36.9 million for a total of $121.3 million.
Q: Do all counties have their own pension fund and pension board?
A: No. Only 21 of 58 counties in California run their own systems. The remainder belong to the huge Public Employees Retirement System, operated for 1,200 public agencies in the state, or privately run systems.
Q: Who belongs to the Orange County system?
A: The fund covers 20,000 active and 4,800 retired employees. They include the county’s 16,000 employees, in addition to San Juan Capistrano city employees and employees of a few special districts.
Q: What are the total assets of the retirement system?
A: $1.5 billion.
Q: Who manages the system?
A: An independent retirement board. The board has nine members, three of whom are elected by mail-in ballot by employees and one by retired employees. Four are appointed by the Board of Supervisors. The county treasurer-tax collector automatically serves on the board. An administrator, who answers to the retirement board but whose salary is set by the Board of Supervisors, runs the day-to-day operations.
Q: What is the return on the pension investments?
A: In the 1989-90 fiscal year, the retirement fund earned a 15% rate of return, better than any other county public pension fund in the state.
Pension System Holdings
The Orange County Employees Retirement System has about $1.5 billion in investments apportioned among hundreds of companies, real estate holdings and other areas. Here is small sampling of some of the system’s holdings:
Investment: Market Value American Home Products Corp. (stock): $3 million Exxon Corp. (stock): $4.2 million General Electric Co. (stock): $4.3 million Johnson and Johnson (stock): $3 million Mobil Corp. (stock): $5.2 million Philip Morris Cos. Inc. (stock): $6.8 million Texaco Inc. (stock): $7.1 million Burbank Towne Shopping Center (real estate): $9.7 million La Paz and Marguerite Shopping Center (mortgages/notes): $3.5 million Source: County retirement system portfolio (as of April 30, 1991)
