Pension funds exiting Russian investments

March 11, 2022

Pension funds and asset owners around the world are taking steps to reduce or divest their holdings in Russian securities.

In the US, the Washington State Investment Board, Missouri's Public School and Education Employee Retirement Systems, and the New Mexico Educational Retirement Board have all been engaging their third-party fund managers to discuss the situation as the Russia-Ukraine conflict intensifies, as reported by Pensions & Investments.

In Europe, major pension funds such as the Universities Superannuation Scheme in the UK and Publica in Switzerland have also stopped allocating to Russian equities and bonds and are exploring how to reduce their exposures, reports Investment & Pensions Europe (IPE).

Other pension providers across the UK, the Netherlands and Denmark are known to have cut holdings or stopped adding to existing allocations.

Norway's giant sovereign wealth fund, the NOK11.7trn (£998bn) Government Pension Fund Global, plans to divest all of its Russian holdings, according to IPE. The fund's deputy CEO said the value of its holdings had collapsed in recent weeks and warned that they may become "essentially worthless at some point".

However, efforts to divest such holdings are likely to be hampered by fresh restrictions placed on trading Russian assets imposed by several governments, including Russia's. Index providers such as FTSE Russell, MSCI and JP Morgan have also announced changes designed to exclude Russian equities and bonds from global benchmarks.

These and other actions have reduced liquidity significantly, with the UK's Pension Protection Fund telling Pensions Expert that there is "currently no liquidity" in Russian assets, meaning it is "impossible" to offload holdings until conditions improve.

Last week the Pensions Regulator in the UK issued new guidelines calling for trustees and others involved in the management of pension funds to be vigilant amid the ongoing conflict.

Steps should be taken to consider any action that may be needed to align with sanctions announced by the UK government, including those in relation to investments, TPR said. It also encouraged defined benefit schemes to consider short-term liquidity needs and the potential impact on sponsor covenant.

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