Sanctions, sanity and sanctuary

You are old enough to know that the world is fairly mad. Nations are often run by fairly despicable people, sometimes elected into power, sometimes they simply take it. At some point in life (for some this might be their entire lifetime) an opinion is formed about ‘others’ who are used as the excuse for many ills and failures. The truth is a victim of agenda and despite the cold epitaphs of November Remembrance services, nothing is really learned other than to repackage misery.

We take it as a sad reflection of “man’s inhumanity to man” that some people don’t and won’t get on, invariably due to holding a different opinion about religion or politics or both. In a capitalist world, withholding money and trade (or making it harder for both) is a way of attempting to coerce a required behaviour. This may have worked in the 1980s with sanctions imposed against South Africa; whether it has worked elsewhere is debatable. Yet it remains a rather obvious tool.

Idealists (which I am prone to myself at times) may well argue that the power of withholding custom or money from some companies may help nudge them towards better behaviour. Trying is arguably better than doing nothing.

In the investment world, screening out companies (or even countries) is not without its challenges. One man’s freedom fighter is another man’s terrorist. Perspective and narrative are up for grabs and twisted to suit.

The war in Palestine, which is horrendous, poses challenges. For some to criticise Israeli politics is to be antisemitic, which is, in my opinion, utterly daft. Anyone who has paid attention to history, knows the misery and horrors inflicted upon Jews for centuries, particularly in the last World War with the holocaust. It is more than understandable that Jewish people would wish to defend themselves. However, any reasonable person, would not consider the atrocities in Gaza anything remotely reasonable but rather more ironically fascistic.

When Government fails to address a problem, individuals are left to find ways that they might express their concern, and investors reduce or completely withdraw from particular sectors or countries. We are all investors; most people simply don’t know how things really work. If you have a final salary pension (lucky you!) then you may not be aware that money doesn’t simply appear, it is the consequence of investment in property, debt and shares in companies. You do not get to select the investment and given the size of the scheme and pressure on it to provide a guaranteed income for your lifetime and your spouse’s, there isn’t really that much invested into shares due to the need for predictable income and an inflation linked one at that.

Some protest groups have taken to highlighting “investment into Israel” or ammunitions and defence companies that supply Israel (amongst many others). They call for a ban on such holdings as an attempt to influence the behaviour of the companies and Governments concerned. I have sympathy with the sentiment, but as a member of such a scheme you don’t get to choose how and what the pension is invested in and it is enormous. The Local Government Pension for England and Wales for example stood at £354,047,000,000 (£354billion) at the end of 2023. This is a scheme where more is paid out (in pensions) than paid in (contributions by employed members). Roughly 51% of the LGPS is invested in shares. Interesting (for me) the investment costs for 22/23 were £1,726,500,000 which is about 0.4876% of the portfolio (so your portfolio – if arranged by us – gets lower investment costs than the massive pension schemes).

In 2022/23 there were 6.49million members of the LGPS, up from the previous year by 0.1million. Active members (people employed and contributing) amounted to 2.09m (32%); deferred members (former employees not yet taking their pension) 2.39m (37%) and 2.0m people (31%) drawing a pension. To say getting this balance right is difficult would be an understatement.

So, to exclusion … well one article I saw claimed that “81 local government pension funds have known complicit investments” and that £12,214,286,216 was the sum involved. Don’t forget that the value will fluctuate wildly each day (they are shares). These include Amazon and Google, I’m going to guess that you use these services so would be deemed complicit too. If I may infer that roughly half of the LGPS is invested in shares (£180bn or so) then the focus (£12.2bn) is on about 6% of the shares held (by value) – or 3% of the total value of the LGPS.

I’m not going to pretend that this is an easy problem and telling the Board of LGPS to divest itself of £12bn into other shares is either a wise, good or bad thing. Will it make any difference? Is 3% of something an issue that normally causes you distress and guilt? How much of your tax is spent on things you don’t agree with or approve of? Do you write to your MP about it?

£12bn is a lot of money, it should be enough to make most of us stop and think, but when presented as 3% – does that alter your perspective?

Sadly, the world is a chaotic, messy and often nasty place. My privileges of living here in the UK (amongst many others) are not lost on me. I don’t have the answers for the crisis, which is both decades and centuries long. Flexing an economic muscle has its appeal, but quite how much this particular issue is of significance I am afraid that I’m unable to say.

Members of final salary (Defined Benefit) pensions are not able to select funds, but of course are able to lobby the Board about their concerns. For those of you with an investment-based pension, we can discuss screening policy at any time.

If you are seeking a personal opinion, then I would say that lobbying is a good approach to the problem, but it isn’t an easy or straightforward process. Arguably, UK Government (or broader) sanctions might have more of an impact.  Demonstrated by the fact that Mr Musk’s remarks and gestures have not gone unnoticed and have resulted in a dramatic change in Tesla’s valuation.

References:

• https://lgpsdivest.org/
• https://lgpsboard.org/index.php/membership23