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Legislators in the House are considering legislation that would require the state of Alaska, the Alaska Permanent Fund and several other funds to divest from direct investments in Russia and Russian companies with few exceptions, but it appears Gov. Mike Dunleavy’s administration might not be fully on board.
In a hearing Thursday to explain the state’s investments in Russia, state officials said the state had about $333 million invested in Russia or Russian companies. With the collapse of the Ruble, the closure of the Russian stock market and other international sanctions and pressure, the state estimates they may now be worth around $18 million.
It’s currently impossible to divest from most of those assets because of sanctions and the closure of the Russian stock market, but legislators are considering House Bill 396 that would require the state to divest from those assets within 90 days of it becoming possible with the argument that would be a show of support for Ukraine.
Department of Revenue Commissioner Lucinda Mahoney said that absent legislative intervention officials overseeing those investment funds—specifically the Alaska Permanent Fund’s Board of Trustees and the Alaska Retirement Management Board, of which she is a member of both—would likely opt to hold onto Russian assets hoping for a rebound.
“There’s different perspectives potentially by the trustees for the ARM board and for the Permanent Fund. Some trustees may believe the prudent course of action is to hold onto the investments rather than conduct what is frequently called a fire sale,” she said, noting others might consider recouping whatever value before they become completely worthless, but said “I would venture to say a majority of the trustees would suggest to hold in anticipation of a recovery.”
Some legislators seemed taken aback by the position, with Rep. Geran Tarr noting that “We’re talking about the invasion of a democratic nation.” Several legislators asked if there was any instance where the investors would take into consideration such conflicts or war in how it drives its investments.
The answer was no, and Mahoney said the state’s investors have a sole focus of maximizing profits. She suggested that the Legislature’s decision to withdraw from Russia would be making a political statement and not in the funds’ best interest.
“Neither of the boards are allowed to make decisions based on what is happening socially,” she said, pointing to the investment guidelines for both.
Mahoney added that Gov. Mike Dunleavy would be introducing his own divestment legislation next week but said that it would allow the Alaska Permanent Fund Corporation and the Alaska Retirement Management Board to continue investing in Russia however they see fit. The divestment rules would only apply to the roughly $7 billion managed by the Department of Revenue, a fraction of the state’s investments and of which only $7 million is invested in Russia.
That was also met with puzzlement by the legislators.
Just last week, Gov. Dunleavy said he had directed the state to “identify and divest, if and when appropriate, from Russian assets, and I call upon our State-owned corporations, the Permanent Fund Board of Trustees to do the same.”
Rep. Jonathan Kreiss-Tomkins, the chair of the House State of Affairs Committee who is handling the House’s divestment legislation, asked if there was a good reason to allow both funds to not only hold onto Russian assets but to continue to invest there.
“The governor was concerned about compromising returns,” Mahoney said.
Kreiss-Tomkins then as asked why the administration would want apparent flexibility to turn a profit on Russia with those funds but not with the $7 billion managed by the Department of Revenue.
“With the $7 billion it wasn’t that significant of an impact,” Mahoney said, “yet it was sending a message that the governor supports some sort of divestiture from Russian investments.”
Mahoney said the other key difference between the committee’s House Bill 396 and the governor’s yet-to-be-introduced legislation was that the governor’s bill would go after companies that were “profiteering” off Russia’s invasion of Ukraine. When asked for more detail on that, she named both JP Morgan and Goldman Sachs as profiteering because they bought Russian corporate assets on the cheap (something that the state would be able to do under Dunleavy’s legislation and the directive to maximize profits). Both companies, it should be noted, have drawn the state’s ire for opposing Arctic oil development and have landed on AIDEA’s enemies list.
House Bill 396 would allow the state to hold onto investments in funds that have a fraction of their funds invested in Russia, which accounts for about $3 million before the Russian financial situation collapsed. Forcing the state to divest from those assets, officials said, would affect far more than $3 million.
Kreiss-Tomkins advised legislators on the committee to take into account the hearing as they consider the path forward on the legislation over the weekend. The legislation is set to be heard again on Tuesday and Thursday next week.