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Despite 'Divestment,' Vermont Pension Fund Still Generating Returns Off Tobacco Stocks

Gov. Peter Shumlin joined with environmental advocates earlier this year in calling for the state pension fund to unload its stocks in coal companies and Exxon-Mobil. But it turns out that the $4 billion fund is still generating returns from companies related to the last big divestment battle.

During a meeting of the Vermont Pension Investment Committee on Wednesday, fund administrators revealed that the state likely has some interest in tobacco stocks.

In an interview Wednesday evening, State Treasurer Beth Pearce said the investment committee has abided by a policy that prohibits the fund from having direct ownership of stock in tobacco companies. But she says the state does have shares in investment vehicles – she likens them to mutual funds – that include tobacco stocks.

“We do have some co-mingled vehicles in some equity accounts that could potentially have, and frankly likely do, have some tobacco exposure,” Pearce says.

Pearce says that doesn’t mean that the fund is out of compliance with a mandate issued in the late 1990s, under then-treasurer James Douglas. That mandate says “investment managers investing VPIC assets in privately managed separate accounts are prohibited from purchasing the securities of companies whose primary source of revenue is derived from the production and sale of tobacco products.”

Pearce says state shares in “collective investment vehicles” aren’t subject to the anti-tobacco directive, since “when you buy into a co-mingled fund, you do not own the securities.”

So, while the pension investment fund might not have direct ownership in tobacco stocks, it does have shares in investment vehicles that include tobacco stock holdings.

Pearce says about 10 percent of the $4 billion pension fund are invested in these kinds of co-mingled funds. She says tobacco stocks probably account for a little less than 2 percent of holdings in those funds, which means that about $6.5 million of the Vermont pension investment fund has been used to buy stocks in tobacco companies.

Pearce notes that the pension investment fund has “100 percent divested [from tobacco] of anything where we own the particular security.”

Pearce says she’d “certainly be happy to have a conversation” about whether to pull the state’s funds from any investment vehicles that include tobacco stocks.

She says determining the effect of that move on the fund’s future performance would be “a very complex review.”

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