Wednesday, February 20, 2008

The Cost of Divestment

Targeted divestment is not a losing venture. Many people think if we divest, we will lose money. Truth is, we could actually make money. Utilizing data from Bloomberg, on average, highest offenders underperformed their peer group by 51.63 percent over one year, 38.69 percent over three years, and 4.73 percent over five years. Also, the highest offenders, on average, underperformed the top three performers in their peer group by 75.92 percent over one year, 62.15 percent over three years, and 38.28 percent over five years.

When targeted divestment was developed, the goal was (and still is) to preserve investment returns AND fight against the Darfur Genocide. These two things (making money and fighting genocide) are not mutually exclusive. They can be done together.

HB 287/SB227 gives ample time for fund managers to find a suitable market for divestment (between 6 and 15 months). Our state investments in targeted companies account for only about $20 million of the roughly $40 billion held in our Permanent Fund. We are talking of less than 0.01 percent of the Permanent Fund. A divestment of less than 0.01 percent is definitely not likely to have a negative impact on the Fund's returns given the abundance of other available investment options and the generous amount of time given to divest.