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Thursday, 21 February, 2002, 12:28 GMT
US pension fund quits Asian countries
Kuala Lumpur skyline, Malaysia
Malaysia's human rights record prompted Calpers exit
By BBC World Business Report's Lesley Curwen and Manuela Saragosa.

The largest pension fund in the United States, the California Public Employees Retirement System (Calpers), is to pull out of investments in four East Asian countries.

We looked at the laws and then we looked at what was really going on - child labour, force labour, freedom of association and discrimination

Dan Viderman
Calpers has said it is selling investments in Thailand, the Philippines, Malaysia and Indonesia after conducting a review of its funds using criteria including social issues and human rights.

The fund manages a total of $150bn in retirement savings. Its actions could act as a trailblazer for other, smaller funds.

That fear sparked falls on financial markets in the region, but representatives of the Thai and Malaysian governments have asserted that other investment funds will not follow suit.

Shock decision

Calpers' exit from the South East Asian nations came as a shock - especially because it was not just for financial reasons.

The criteria used were similar to those used by so-called ethical investment funds.

"We looked at the laws, the institutional capacity to implement the laws and then we looked at what was really going on on the ground - child labour, force labour, freedom of association and discrimination," Dan Viderman of the New Hampshire-based consultancy Verite that helped draw up the guidelines told the BBC's World Business Report.

"We had in country researchers in those South East Asian countries using questionnaires to interview governments, labour unions, NGOs and business groups. Then we used more traditional research data to make an overall assessment."

But it also based its new criteria on issues of corporate governance: assessing the openness of a capital market, the sorts of protection offered to investors, and how effectively a market is regulated.

Calpers said its rewritten investment criteria make it the first public pension fund to look beyond traditional economic factors.

"Calpers will be sending very strong signals to those countries that all is not right and there are concerns and that is a good thing to happen," Tessa Tennant, who recently set up a lobby group in Asia, the Association for Sustainable and Responsible Investment told the BBC's World Business Report.

"But I think that the real influence comes from them as shareholders and therefore how they can actually help to raise standards amongst Asian corporations."

The Thai finance minister Somkid Jatusripitak defended his country's human rights record and said he did not think other foreign funds would pull out.

In Malaysia, the government's economic advisory body, the National Economic Aid Council, said Calpers was a relatively new investor in the region, and might not have complete insight into the value of emerging markets in East Asia.

'Best financial performers'

The US pension fund did give some detail about its review of investments in the region.

It said Malaysia and Indonesia had scored poorly on the human rights front, the Philippines failed mostly on financial criteria, but Thailand did badly for a mixture of reasons.

Some analysts were puzzled by the decision to move money out of countries which have been the best financial performers in Asia.

The Thai, Philippine and Indonesian stock markets have climbed by more than 20% in dollar terms since 1 January.

Countries in favour

The fund has drawn up a list of "acceptable" countries to invest in.

It said it will acquire stakes in companies based in Poland and Hungary - markets which have gained 4% and 10% respectively this year.

Calpers also said it will allow managers to buy into markets in Argentina - which has dropped 36% so far this year - and Brazil, which has suffered a fall of 6%.

Other permitted markets include Mexico, Chile, Israel, South Africa, Peru and Turkey.

Those nations which Calpers does not invest in include China, India, Russia, Pakistan and Venezuela.

Dan Viderman, Verite
"I think there's no doubt that richer countries find it easier to implement these standards."
Tessa Tennant, supporting ethical investment
"I hope...this will... trigger a much better discussion"
See also:

21 Feb 02 | Asia-Pacific
Indonesia charges seven over E Timor
17 Jan 02 | Americas
War on terror cloaks rights abuses
05 Aug 01 | Business
Pension funds 'should try harder'
10 Jul 01 | Business
How ethical...How profitable?
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