Alaska House hears Russia divestment bill with governor set to propose a more limited option

The Alaska House is hearing a bill that would see the state divest its Russian investments.
Published: Mar. 10, 2022 at 7:24 PM AKST
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JUNEAU, Alaska (KTUU) - The Alaska House of Representatives has started hearing a bill that would compel the state of Alaska to dump its investments in Russia.

Rep. Jonathan Kreiss-Tomkins, D-Sitka, is carrying the bill on behalf of the House State Affairs Committee. He expects it will get “expedited consideration.”

“We’re seeing the most historically unprecedented invasion of a sovereign, democratic country since World War II,” Kreiss-Tomkins said. “Russia is perpetrating, as far as I’m concerned, evil.”

House Bill 396 would require the Alaska Permanent Fund Corp. and state retirement portfolios to not invest further in Russia and to divest their current Russia holdings. Those investments would need to be dumped within 90 days of being identified as Russian.

The bill would not impact Russian assets in comingled funds and the divestment requirements are written to sunset on New Year’s Day of 2024.

The Alaska Permanent Fund Corp.’s board of trustees released a statement on Thursday, saying that its members understand that the Ukraine situation is “uniquely different” to previous calls to divest from other countries, which have been rejected.

“The ongoing crisis and tragedy resulting from Russia’s undeniable and merciless assault on Ukraine warrant a global and Alaskan response,” the statement says.

The Permanent Fund’s investment managers have been directed not to purchase any more Russian securities. They say having more time to divest from Russia would be beneficial for the state, but it’s difficult to estimate when that could happen with the continued closure of the Moscow Stock Exchange.

The trustees detailed the $219 million in Russian investments that the fund held at the end of December. They note that their current valuations are “highly speculative,” but it’s expected that they’ve plummeted in value by over 90%.

“From a financial standpoint, the harm to the Fund has occurred and effectively, the market has divested itself of Russian assets,” the statement says.

Revenue Commissioner Lucinda Mahoney, who is also a member of the Permanent Fund’s board of trustees, said on Thursday that a majority of her fellow trustees would want to hold onto the state’s Russian investments in case they increase in value again.

She explained that the state had $333 million invested in Russia at the end of December, representing less than 0.3% of total state investments. Gov. Mike Dunleavy’s administration has said legislation would need to pass to provide clear guidance to divest from Russia as fund managers are bound by the prudent investor rule, which requires maximizing profits.

The governor has joined a bipartisan group of legislators in calling for the state to divest from Russia and for the independent Permanent Fund board of trustees to make the same decision. He is set to introduce his divestment bill next week.

On Thursday, Mahoney said Dunleavy’s bill would not impact the $81 billion managed by the Alaska Permanent Fund Corp. or the $50 billion managed by the Alaska Retirement Board.

Instead, his bill would be limited to dumping $7 million in Russian assets from a $7 billion fund managed by Mahoney herself. It also wouldn’t prevent the state from buying more Russian assets at “firesale” prices.

“The governor was concerned about compromising returns,” Mahoney said about Dunleavy’s more limited divestment proposal.

Jeff Turner, a spokesperson for the governor’s office, said by phone that Mahoney meant that the governor was concerned about “compromising returns” by divesting too quickly. He added that the House bill impacts the Permanent Fund and state retirement portfolios, meaning Dunleavy’s bill wouldn’t have to.

Across the country, state pension portfolios are dumping their Russian assets or debating whether to divest. Turner said that the governor supports divestment as well as the independence of these investment boards.

“He’s calling on them to do it, but they need to make the decision themselves,” Turner said.

Rep. James Kaufman, R-Anchorage, sits on the House State Affairs Committee and stressed that what has happened in Ukraine has been “terrible.” But, he said he respects the autonomy of the Permanent Fund’s managers to make investment decisions for the financial benefit of the state.

“I’m happy to hear the bill today,” he said on Thursday. “But I’ll be looking at the whole risk management piece around the Permanent Fund: How they manage, how they do what they do, and that they don’t create a bad precedent in the future.”

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