Tags: Public | Pension | Funds | Inversion

NY Times: Public Pension Funds Are Profiting From Tax Inversions

By    |   Tuesday, 02 September 2014 10:47 PM

Some of the nation's biggest public pension funds, which manage trillions of dollars for government workers, have major investments in American companies that are renouncing their corporate citizenship.

The New York Times noted the companies are fleeing in order to cut their U.S. tax bills, but that the public pension funds have been mostly mum on the controversy.

President Obama has said the practice, called an inversion, is unpatriotic, and Democratic lawmakers have introduced legislation to stop it in its tracks. The companies, however, note the U.S. has the highest corporate tax rate in the developed world, and suggest they are being forced to move offshore to protect profits.

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The Times reported that the California Public Employees’ Retirement System (CALPERS), the nation’s largest public pension fund and typically one of the most vocal, is avoiding the subject.

“We don’t have a view on this from an investor standpoint — we’re globally invested, as you know, and appreciate that tax reform is a government role,” Anne Simpson, Calpers’s senior portfolio manager and director of global governance, said. “We do expect companies to act with integrity, whatever the issue at hand — that goes without saying. We also want to see a focus on the long term.”

When pressed specifically on corporate tax flight, a CALPERS spokesman told the Times, “We’re going to have to take a pass on this one.”

At the Florida State Board of Administration, a public pension fund that manages more than $150 billion, the reaction was similar.

Ash Williams, executive director and chief investment officer of the Florida fund, told the Times: “If you’re in my seat, you’re thinking about it not only as an investor, but you’re thinking about it as a fiduciary, which sort of walls out a lot of the political considerations that might otherwise be there.

“You just have to think, ‘OK, so I’m guarding the economic interest of my beneficiary. That is my duty, and that’s the start, the middle and the end of it,’” Williams said.

The Times noted that inversion mergers, in which a U.S. company acquires a foreign one to capture a lower foreign tax rate, such as Medtronic’s pending acquisition of Ireland’s Covidien or Burger King’s proposed purchase of Canada’s Tim Hortons, can prop up share prices of the acquiring firms and help pension funds show better investment performance.

The Guardian said the anti-inversion forces may have been weakened by the news last week that billionaire Warren Buffett not only is in favor of the Burger King deal but is investing money in it.

“The involvement of the veteran investor – America's second wealthiest man, known as the Sage of Omaha – creates a big problem for Obama,” said the Guardian. “It was Buffett's endorsement, after all, that the Obama administration had held up as it pushed through higher taxes for America's very top-earning households – a measure popularly known as the ‘Buffett rule’.”

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Some of the nation's biggest public pension funds, which manage trillions of dollars for government workers, have major investments in American companies that are renouncing their corporate citizenship.
Public, Pension, Funds, Inversion
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2014-47-02
Tuesday, 02 September 2014 10:47 PM
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