Labor Relations Week - May 5, 1999 - By Elizabeth Walpole-Hofmeister

Conference Report

Pensions

Conference Looks at Pension Investment As Tool for Advancing Jobs, Development

The hundreds of billions of dollars in US pension funds need to be invested in ways that not merely assure that workers have a secure retirement, but also that the communities where they live, and work remain economically viable, speakers told a Washington, D.C., conference on pension investment practices.

The theme of "socially responsible" investment, that works for, not against, U.S. worker's surfaced often during the April 29-30 conference, at which some 200 labor officials, state and federal policymakers. academics, and investment professionals looked at ways of changing-U.S. pension investment practices to promote community development and protect U.S. jobs.

"To take workers' capital [in the form of pension fund investment] and move it to Asia to exploit those workers at the expense of American workers is wrong," said Leo Gerard, United Steelworkers, secretary treasurer, in opening the conference. "Why should U.S. pension money be invested in plants in Vietnam, and China, and Malaysia and not in Pittsburgh or Baltimore or Quebec City", Gerard asked.

The nearly $7 trillion currently in private U.S. pension funds is the largest single source of investment capital in the United States, according to research presented at the two-day conference sponsored by the United Steelworkers, the Heartland Labor Capital Project, and the AFL-CIO's Center for Working Capital. The Heartland Project is an effort by the USW and others to promote innovative job-oriented investment strategies.

The Heartland Project views pension funds and other. employee retirement savings such as 401 (k) plans as "labor capital" that should be invested to preserve and protect the jobs of U.S. workers, not simply to get the highest possible return for investors. "I'm convinced that, except fur attempting. to provide pension plans, most of the capital generated by labor is being used against it," Gerard said.

Advance Debate on Investment Objectives. The intent of the conference was to open the debate over how pension funds are being invested and how current regulations stymie efforts to invest capital in ways that would preserve domestic jobs-particularly in the manufacturing sector-being lost due to the globalization of the economy, sponsors said.

Discussion about the investment of pension funds to facilitate local economic development needs to occur not only at the political level but also with pension fund administrators and trustees, according to Gerard. Too often fund trustees and administrators see this type of investment as contrary to their fiduciary responsibility, he said.

AFL-CIO Secretary-Treasurer Richard Trumka said that. employee pension funds have been used to finance some of the most destructive buyouts and takeovers; that have resulted in massive layoffs. Workers have to demand a higher standard of responsibility from firms in which our money is invested, he said.

Increasingly, they are doing this through labor-sponsored shareholder resolutions, Trumka said. Such resolutions are beginning to-address issues like the "exorbitant" high salaries of top corporate officers and go hand in hand with alternative investment strategies, he said.

Over the last five years, labor has begun to make its voice heard in financial markets, he said. The AFL-CIO established its new Center for Working Capital as a mechanism for fostering debate and discussion over how best to invest workers' pension Money in a way that promotes broad-based economic prosperity. But he predicted that Wall Street will "fight efforts by workers to take control of their own money." Wall Street investors want us to accept their perception of smart-investment because they are indifferent to the needs of workers, Trumka said.

Heartland Fund In the Offing. A tangible objective that conference organizers - hope will grow out of the two day meeting, according to Gerard, is the establishment of a labor investment fund that would put to "positive use" the millions of dollars in workers' pensions and individual retirement. savings accounts. Tom Croft, director of the Heartland Project, said that there is a good deal of support among manufacturing unions for creating a capital fund similar to the fund that was established some 30-years ago by the constructtion trade unions to promote jobs in that industry. The Heartland Project may be able to move toward actually establishing such a fund by the end of-this year, he said.

Ronald E. Richman, a pension attorney with the firm Of Schulte Roth & Zabel, New York, who advises the Heartland Project, said that recently there has been interest among a number of jointly trusteed Taft-Hartley pension funds to commit as much as $40 million in the investment fund the project wants to create.

Traditionally, collectively bargained Taft-Hartley funds have not put their assets in private capital that invests in companies that are not publicly traded because fund trustees have felt that such investments expose them to significant liability, Richman said. But with the run-up in the markets, the Taft-Hartley funds are now well funded and even over-funded. Trustees and administrators appear more willing to take some risk, he said. Even so, the $40 million that these union pension funds would put into the Heartland project fund would represent only about 5 percent of their portfolios, he said.

Canadian Model of Labor Capital Investment The Quebec Solidarity Fund, established in 1983 through the efforts of the Quebec. Labor Federation, was presented to conference attendees as a model for labor capital investment.

The fund was created at a time of severe recession and job loss in Quebec Province, according to Robert Dean, former provincial minister of employment. Established with the explicit purpose of creating and maintaining jobs while still providing a fair return to investors the fund is credited with saving some 72,000 jobs in the province. Created through legislation enacted by the provincial government, the fund received $10 million in start-up support from the Quebec government that was later matched by another $10 million from the Canadian federal government. Today the Quebec labor fund has some $3 billion in assets and has provided venture capital to some 1,200 small and mid-sized companies in the province. Together with four other labor funds in other provinces that were inspired by the Quebec model, labor capital in Canada today has grown to $4.6 billion and accounts for 54 percent of all venture capital in Canada, according to Fernand Daoust, adviser to the president of the Quebec fund.

"We didn't create the fund to make money but to create employment for workers," said Daoust. Nonetheless the fund offers returns averaging 7 percent to its shareholders. "It's a recipe that works," he said.

Doing Good by Doing Well. Two public officials from opposite sides of the country attending the conference offered essentially the same advice: investment cannot be used solely to promote laudable social objectives such as preserving jobs; there must be a adequate financial return on the investment. But the two objectives are not mutually exclusive, they said.

Oregon State Treasurer Jim Hill said that he believes it is possible to make investments that create jobs while still getting a market return on the investment. "It is possible to do well by doing good," he said. Hill, who oversees some $32 billion in Oregon public employees' pension funds, said that he does not have final authority on how those funds are invested. He must work with the Oregon Investment Council whose members are understandably cautious.

Pension fund trustees and administrators need to be shown that they can get a market rate of return on something that is socially responsible, he said.

Pennsylvania State Senator Allen Kukovich, whose western Pennsylvania district has seen some of the worst effects of the loss in manufacturing jobs, likewise told the conference that he believes it is possible to make high risk investments in small companies and still get a good return on that investment. But he cautioned that such investment cannot be seen as social engineermg. "You have to be able-to defend that investment," he said "You have to avoid being labeled as social engineers," he warned.