If Sen. Dianne Feinstein’s (D-Ca.) assault weapons bill is not enough of a kneejerk reaction to the Newtown shooting, Chicago is playing its part in contributing to the lack of common sense measures as well — by hurting its employee pension system. The board of Chicago’s Municipal Employees’ Annuity and Benefit Fund voted to divest any assets it holds in the gun manufacturing industry.
Divesting assets to make a moral or political statement is nothing new. Decades ago, many public pension funds pulled their investments out of firms doing business in South Africa to protest apartheid. Public pensions have also shied away or divested completely from tobacco firms, even though tobacco stocks are typically lucrative. However, it is one thing for an individual to make this decision about his or her own personal investments. That is the individual’s personal choice. It is another thing for a city or state’s pension board — that is obligated to fully fund the promises made to its employees — to jump ship and sell highly lucrative stocks at a potential loss. Regardless of one’s moral or ethical viewpoint on guns, alcohol or tobacco, the decision of a pension board to divest without considering the performance of said assets is simply irresponsible and reprehensible.
On a positive note, the decision of Chicago’s board to dump gun stocks at this point in time did not likely result in a loss for the pension fund. The share price for Smith and Wesson (SWHC), one of the fund’s assets, increased more than 200 percent from 2011 to 2012. But it’s too bad the board is not holding on to this gem. Their return on equity is an impressive 45.92 percent, meaning every shareholder’s dollar invested produces nearly 46 cents in profit. Furthermore, the company has grown at an average annual rate of 18.5 percent during the past seven years.
But most of the time, divesture is an unwise move based purely on politics and emotion. Since moves of this sort ignore the old adage to “buy low…sell high,” they can result in devastating losses. The California’s teacher pension fund was not so fortunate when it divested several hundred million dollars in tobacco stocks (see the NCPA publication.)
If I were a Chicago city employee, I would storm the gates demanding an explanation as to why the city is playing politics with my retirement.