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

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

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

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

“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.”

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.

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.”

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

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."