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The Senate Finance Committee held a hearing Tuesday on Gov. Dunleavy’s Russian divestment bill, which only requires a fraction of a fraction of the state’s investment finances to divest from Russian investments. It’s a far softer bill than one that’s been proposed by the House and senators let the Dunleavy administration know.
While the House legislation would require all of the state’s investments to divest from direct investments in Russia and Russian companies, Dunleavy’s Senate Bill 235 would exempt both the Alaska Permanent Fund and the state’s pension fund, allowing them not only to hold onto some $326 million in investments if their managers feel it’s likely to return a profit but to increase their investments if they see fit. The state has roughly $333 million invested in Russia, most of which is largely considered worthless at this point.
The legislation would also bar the state from doing business with any banks that the Dunleavy administration believes has profited off of Russia’s attack on Ukraine (all of which also happen to be banks that aren’t fans of investing in Arctic oil development).
That the legislation would attack those banks for what the Alaska Permanent Fund Corporation and Alaska Retirement Management board (the ARM board) would be able to do under the divestment exemptions was one of the many questions raised by the committee and produced one of many less-than-satisfying answers from the administration.
“What is profiteering?” Alaska Permanent Fund Corporation Chief Investment Officer Marcus Frampton told the committee. “You know it when you see it.”
But it was the overall exemption of the Alaska Permanent Fund and the pension funds from divestment or, potentially, new investment that rankled the committee the most. The two funds make up a vast amount of the state’s funds and a vast amount of the state’s investments in Russia. The legislation would only impact the roughly $7 billion managed by the Department of Revenue, of which only $7 million is invested in Russia.
It’s a point that Sen. Bill Wielechowski said undermined the entire point of the legislation.
“I would take issue with the statement we heard that we’re standing with the people of Ukraine with this bill. Let’s be clear about what this bill does and doesn’t do. This bill exempts 90% of our current assets that are invested in Russia, several hundred million dollars; it allows the Permanent Fund Corporation through the Permanent Fund … to profiteer off the invasion of Ukraine; it allows the ARM board, which controls billions of dollars, to profiteer off the war in Ukraine,” he said. “This bill does not in any way shape or form stand with the people of Ukraine. This is a completely toothless bill, and I don’t even know why we’re considering it.”
Department of Revenue Commissioner Lucinda Mahoney countered that it was really just about sending a unified message as a country and that the $7 million that it would impact was more than most other states had invested in Russia. It wasn’t a line that sat well with senators, who continued to press Mahoney over the administration’s tacit approval of continued investments in Russia. At Mahoney’s continued reference to the Prudent Investor Rule that drives the funds to focus solely on maximizing return, Sen. Bert Stedman held up a coffee cup with the Prudent Man Rule the idea of guiding investment decisions by the sensibilities of an average person and noted an average person would probably have a problem with what Russia’s doing, “Especially if they start gassing people and using nuclear weapons.”
“Where do we draw the line?” Mahoney eventually asked, noting that the state is regularly lobbied to divest from all sorts of things for socially motivated reasons.
Stedman shot back that it is, in fact, easy to draw the line.
“It’s pretty easy for me to draw a line between a group in society that may want to invest in carbon neutral or maybe want to invest in hydro dams or don’t like logging, but it’s a whole lot different when they’re shelling and burning cities. When they’re bombing hospitals, when they’re bombing bomb shelters that have 1,000 kids in the basement,” he said. “It’s not that hard for me to draw the line.”
Pressed further, Mahoney eventually conceded that as a trustee for the Alaska Permanent Fund and a member of the ARM board that she would likely support divestment from Russia because it’s unlikely to turn a profit anytime soon. She said whether the rest of the APFC board of trustees or the ARM board would do the same, though, noting that others may want to hold onto the investments in hopes for a recovery. “Some may believe their fiduciary duty is to hold the investments,” she said.
Mahoney ultimately said if the Legislature has strong feelings about these types of investments, then it ought to reconsider the guidance that it’s giving them. This launched a discussion about whether the Legislature ought to step in with firmer rules against the state investing and profiting off a country attacking another country. Mahoney said it’d be prudent for the Alaska Permanent Fund Corporations’ Board of Trustees and the ARM board to meet first to decide whether they have a position on such a change.
Follow the thread: Things get heated with Dunleavy’s divestment-lite bill.