We just received the following note from the Interfaith Center on Corporate Responsibility:
I’m writing to share a story that might be of interest to your readers.
As active shareholders, members of the Interfaith Center on Corporate Responsibility (www.iccr.org) have been working with top U.S. financial institutions for decades to reform banking practices in an effort to stabilize global markets.
Our members, mainly faith-based institutional investors, are interested in these issues because they understand that volatile markets will disproportionately impact the world’s poor. The current volatility in commodities prices which is partially driven by over speculation in these markets has the potential to create untold suffering and for this reason, our members are working to discourage these investments.
The press release below tells of our recent success with CalSTRS in an on-going campaign.
Indeed, the background here is that the California State Teachers’ Retirement System earlier announced earlier this year that it was looking to allocate assets into commodities as part of its investment diversification plans.
But, as John Kemp at Reuters noted earlier this week, those plans were scaled back substantially this week largely due to the above concerns. Instead of an original planned $300-500m investment (with an ultimate investment view of as much as $2.5bn), CalSTRS decided to cut allocation plans to about $150m.
As Kemp observed:
In September, CalSTRS staff put two options to the investment committee. The preferred option would have put commodities into the fund’s absolute return asset class with an allocation of up to 1.5 percent of the total fund (equivalent to about $2 billion) to be gradually invested over the course of three years. As an alternative, the staff recommended “incubating” commodities within the innovation portfolio with an allocation of $300-500 million over the same period. Now the staff have cut their recommended allocation to just $150 million over 18 months in the incubator programme, when the programme would be reviewed and the size of the allocation could be increased further.
Which makes it strike one for God, the Interfaith Centre and the Catholic missionary order of the Maryknoll Sisters (amongs others) who appear to know a lot about derivative and commodity markets:
For years ICCR members have been concerned about the social purpose of financial activity and have advocated for an open, transparent and well-regulated financial system”, said Cathy Rowan of the Maryknoll Sisters. “During the month of July the price of wheat increased by 60%. When excessive speculation causes price volatility, we are in danger of forgetting that staples such as wheat and rice are not just commodities but necessities.
In June, the California State Teachers Retirement System (CalSTRS) announced their intention to invest $2.5 billion in commodities markets. In response, a coalition of 37 organizations representing faith-based institutional investors, agricultural and energy groups and other NGOs wrote a letter to the fund outlining their concerns and encouraged them to rethink their investment strategy. “We were very concerned that if a large fund like CalSTRS shifted part of their portfolio into commodity markets, other institutional investors might follow suit,” said David Kane of Maryknoll’s Office of Global Concerns. “The food and energy bubbles of 2008 that drove 130 million people into hunger can be traced back to commodities speculation.”
Let’s hope the Maryknoll Sisters will be ready to help out the California State Teachers, though, in the event that their pension funds fail to return enough to retire on.
Although, perhaps they should really direct some of their rage to key central banking institutions, which arguably fueled many of the current global inflationary imbalances in the first place — by importing deflation into the developed world and exporting inflation to the developing world for decades long.
Either way, shame on you California teachers (and other retirees) for even trying to protect your wealth. Tsk, tsk.
Related links:
It’s a zero-sum game Mr. Hari - FT Alphaville
In defence of energy speculators - FT Alphaville
Evil commodities speculators in the dock - FT Alphaville
Calstrs to cut investments in raw materials – FT