Ignoring professional investment advice, University of California regents Wednesday instructed their staff to snuff out plans to purchase $55 million in tobacco stocks.
The action comes after months of debate. Conservative regents view buying tobacco stocks as shrewd investment strategy, but liberals believe such investments are socially irresponsible and morally troubling for an institution known for its research on tobacco-caused diseases.
The prestigious nine-campus university doesn't own any tobacco stocks and has not for decades.
That status became clouded after the regents launched a new effort to diversify the university's $52.9-billion portfolio. They began moving assets into two stock index funds that include tobacco stocks, such as Philip Morris and R.J. Reynolds.
Suddenly, the regents found themselves under criticism from students, professors and other tobacco foes, including Lt. Gov. Cruz Bustamante. He called it hypocritical for the university to invest in tobacco stocks at the same time it accepts $22 million a year in tax dollars to conduct health research into diseases caused by tobacco use.
The regents responded by instructing the staff to hold off on buying those tobacco stocks until they could vote on the issue.
On Wednesday, a proposal to continue to permanently exclude tobacco stocks sailed through the regents' investments committee without comment. Final approval by the full board is expected today.
"It was no fuss, no muss," said Bustamante, who is a regent by virtue of his position as lieutenant governor. The case against tobacco investment was so compelling, he said, that all regents had to do "was just sit and think about it for just a moment."
Regent Meredith J. Khachigian said she was prepared to support the purchase of tobacco stocks if it meant protecting the earnings of UC's retirement funds for 136,000 current and retired employees.
She and other conservative regents worried that if they banned tobacco stocks, they would be asked next to forsake other types of stocks that didn't pass muster for political correctness.
"This is a very heated issue," Khachigian said. "The regents cannot be swayed by rhetoric. We have a fiduciary responsibility to the retirees who have put their money in these funds."
Ultimately, it was dollars and cents that swayed conservative members of the board.
Under a proposal by UC President Richard C. Atkinson, the staff found alternative stock index funds that offer a diversified portfolio without tobacco stocks.
The cost to switch to those funds is estimated to be about $20,000, and the new funds are expected to bring in similar earnings. Atkinson's proposal departed from the advice of Wilshire Associates, a high-priced consultant that recommended investing in the total market, including tobacco.
"As long as I can remember, we haven't invested in tobacco stocks," Atkinson said. "This is the right way to go."
Stanton A. Glantz, a UC San Francisco professor of medicine, applauded the regents for "doing the right thing."
Glantz, the author of "Tobacco War," about the politics of tobacco, said the university has twice defended him in court from tobacco interests that tried to shut down his academic investigation into industry practices.
"This is an industry whose basic interests and behavior are antithetical to the university's mission," Glantz said of the tobacco industry. "It would be like investing in people who burn books for a living."
With its decision, UC joins a trend among public institutions and universities of shunning tobacco stocks.
The California Public Employees Retirement System last fall, for instance, decided to divest itself of about $525 million in stock it holds in tobacco companies in similar passive managed portfolios. The pension for California State University employees is part of the CalPERS retirement system.
Other institutions, including Harvard, Stanford and the universities of Michigan, Washington and Wisconsin, have dumped tobacco stocks from their portfolios.
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