NC pension fund holds $80M in Russian assets. Why divesting might not be possible

North Carolina State Treasurer Dale Folwell says much of its money benefitting Russia is tied up in larger funds or inaccessible.

Posted Updated
Treasurer Dale Folwell
Bryan Anderson
, WRAL state government reporter
RALEIGH, N.C. — North Carolina State Treasurer Dale Folwell said his investment team has identified nearly $80 million in the state’s pension fund that goes to Russian-based entities but has no plans to divest its holdings.

The sum represents just 0.07% of the more than $118 billion state retirement plan that covers roughly 1 million residents.

Severing ties with the country that has come under heavy scrutiny and faced hefty sanctions for invading Ukraine is not as easy as some in the fund might hope. That’s largely because the $80 million state workers have identified is part of a broader international fund the state has limited influence over.

“Some of the national and international index funds are determining how to extract themselves from these types of investments,” Folwell said.

Last week, Gov. Roy Cooper urged government agencies to identify and terminate any of its holdings or operations that could benefit Russia. In announcing his executive order, Cooper said in a statement that the state “stands in solidarity with the people of Ukraine as they fight courageously against a tyrant to defend their country, their democracy and their freedom.”

Folwell, a Republican, agrees with the Democratic governor’s sentiments.

Treasurer Dale Folwell

“What Governor Cooper said is obviously very important,” Folwell said. “But we're the ones that have the responsibility to operationalize that aside from what Gov. Cooper said about how this impacts our pension plan.”

Why NC can’t, won’t divest

While sanctions have in part limited the kinds of companies American funds can invest in, there are many Russia-linked companies—such as U.S.-based firms with operations in Russia—that are legal to invest in. Divesting from those kinds of companies is a priority for some because exposure to certain assets with ties to Russia could be considered risky from a return standpoint.

For the state, divesting from Russia is not as simple as an on and off switch.

“It’s not like you can press a button or make a phone call and identify and then immediately divest $80 million in assets that are probably spread all over between index funds and currency funds,” said Dan Bowling, a Duke University School of Law professor who previously served as chair of the pension investment committee for Coca-Cola Enterprises. “It’s very complicated. It’s complicated from a legal standpoint and a fiduciary standpoint, even if the intent is good.”

While stocks in individual companies can be bought and sold more freely, the index funds North Carolina owns that are tied to Russia also include a wide swath of businesses outside of Russia.

Many states are moving to sever their financial ties to Russia.

The nation’s largest pension fund, the California Public Employees’ Retirement System, decided to halt new investments in Russia after it received a request from Gov. Gavin Newsom to do so.
Connecticut State Treasurer Shawn T. Wooden announced last week that he’d work to divest the state’s pension funds from Russian-owned assets.

In North Carolina, the Bank of New York Mellon Corporation is a primary caretaker of the state’s pension fund and works at the direction of North Carolina’s investment management team.

“When we manage $120 billion in the pension plan, it sits at a custodian,” Folwell said. “Our custodian is BNY Mellon. They've informed us that, right now, all trading activity has stopped regarding any of these Russian investments. We're learning that some of the indices, like the European indices that invest in Russia, are looking at how they extricate these Russian investments from their overseas indices.”

Folwell’s office said the decision to divest is at its discretion, but noted many Russian securities are “locked up” due to market restrictions and lack of liquidity.

“We have no plans to divest from our Russian holdings unless directed by federal or state regulatory authorities,” his department added. “We will continue to make investment decisions based on what is in the best interest of the members of the pension plans who teach, protect and otherwise serve. However, we will continue to monitor the situation and be prepared to reallocate investments as circumstances warrant.”

Individual stocks also face scrutiny

Every three months, the state treasurer’s office submits documents to the federal government disclosing individual stocks it owns.

The latest such disclosure, which the U.S. Securities and Exchange Commission requires to be filed for all institutional investment managers with at least $100 million in assets, showed North Carolina’s pension fund included nearly $19 billion in individual stocks from more than 1,000 companies, as of Dec. 31.

Folwell declined to say whether his team would divest from a single company it has stock in. He identified three companies that do heavy business in Russia, including Apple, ExxonMobil and Microsoft, but suggested divestments ought to come from the companies themselves.

“They will be making pronouncements and decisions regarding their shareholders and their exposure to Russia,” he said.

Apple said in a statement last week that its products would no longer be sold in Russia. Microsoft said it would “suspend all new sales of Microsoft products and services in Russia.” ExxonMobil said it would “not invest in new developments in Russia” and exit its Sakhalin-1 oil and gas project in the country.

According to the SEC filing, North Carolina’s pension fund included 1.8 million shares of Exxon stock by the end of 2021, which was the state’s 26th largest individual stock holding and valued at more than $110 million at the end of the fourth quarter.

Apple and Microsoft were the largest holdings by far. The fund had nearly $1.2 billion in Apple stock and almost $1.1 billion in Microsoft stock. Amazon, Google parent Alphabet and Tesla were the next largest holdings at $624 million, $371 million and $363 million respectively.

Folwell said retirees should feel secure in the state’s investments given that the pension fund is down roughly 4% year-to-date. By comparison, the S&P 500 market declined 9.8% this year through Friday’s market close.

“I wish that this interview weren't taking place because I wish that this mass murderer was not invading a sovereign country,” Folwell said, referring to Russian President Vladimir Putin. “But we are where we are and we will deal with it."