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Analysis: Trustees of Florida’s SBA propose boycott of Venezuela and Goldman Sachs

State Board of Administration facing political pressure

At least two of the three trustees who oversee Florida’s $194bn state pension fund, will push for divesting from any organisation that supports Venezuela.

The measure would affect the relationship between the State Board of Administration (SBA) and Goldman Sachs, in which the fund holds shares worth $147m, $171m in bonds/paper and yearly fees of $1.9m.

Goldman is being targeted due to its recent $2.8bn purchase of corporate bonds issued by Venezuela’s national oil company, Petróleos de Venezuela (PDVSA). However, a spokesperson for Goldman Sachs Asset Management told Responsible Investor that the firm has not conducted business with “the Maduro regime” and does not intend to.

The spokesperson said Goldman bought the bonds, issued by PDVSA in 2014, for its clients through a broker in the secondary market. “Many asset managers make similar investments every day for clients who own mutual funds, index funds and ETFs.”

Rick Scott, Governor of the State of Florida and Chairman of the SBA’s Board of Trustees said he would propose a ban on “doing business with any organization that supports the oppressive Maduro dictatorship.”

Scott will make the proposal during the next meeting of the Florida Cabinet on August 16. The Cabinet has four members, three of who are SBA trustees.

Asked about the details of the proposal, including whether there is a cost-benefit analysis available for SBA’s beneficiaries or if it could create unintended consequences for the people in Venezuela, a spokesperson for the Governor declined to comment stating: “We will have more details on the proposal before the August 16 Cabinet meeting”.

A second trustee of the SBA is Jimmy Patronis, Florida’s Chief Financial Officer, who supports the Governor’s proposal for the SBA.

A spokesperson for Patronis told RI: “As we review all available options, CFO Patronis looks forward to an open discussion during the upcoming trustees meeting. He believes that under no circumstances will the State of Florida engage in business with states sponsors of terror.”

The spokesperson added that the Florida Treasury, which falls under the CFO’s purview, conducts no business with PDVSA.

At the time of writing, a third trustee of the SBA, Attorney General Pam Bondi, did not reply to RI’s requests for comment.

The SBA’s overall strategy is overseen by the three trustees who delegate authority to the Executive Director and CIO, Ash Williams.The Governor’s proposal comes on the back of a bill being sponsored by State Senator José Javier Rodríguez.

The bill explicitly requires it to “divest” and “prohibits the SBA from investing in any institution or company that does business with or invests in the government of Venezuela”.

Rodríguez told RI that this “effort at divestment” begun when “we learnt of the bonds purchase [by Goldman Sachs]”.

“The State of Florida should not be owning stock and should not be hiring Goldman Sachs to manage our portfolios […] One of the things I discussed with the State agency is that in the interim there are mechanisms through which we can exercise our voice as shareholders.”

Senator Rodríguez corresponded with Williams asking the SBA to use any proxy voting power to express Floridians’ concerns with Goldman Sachs’ purchase.

An SBA spokesperson told RI: “As fiduciaries, the Trustees and the SBA staff are limited to the framework outlined in the Florida Constitution and Florida Statutes relating to investments. Until a specific proposal is adopted by the Trustees, or legislative changes are made, it would be premature to make any calculations.”

The spokesperson added: “Of course any divestment comes with, at a minimum, transactional costs, and possibly opportunity costs. However, as a result of prudent investing, effective policies and procedures, the SBA does not currently maintain any investments related to, or owned by the Venezuelan government.”

According to MSCI’s ESG Government Ratings, Venezuela rates as a BB (third lowest rating on a AAA to CCC scale).

Mario López-Alcalá, MSCI’s Market Lead Analyst, Latin America, told RI: “While the country boasts an abundance of natural resources, the outlook for institutional investors has changed from neutral to negative in the last year because of the ongoing destabilization of the political, social and economic environment.”

Regarding the purchase of PDVSA’s bonds by Goldman Sachs, which later emerged that Nomura also acquired, López-Alcalá said that MSCI assessed it as a minor controversial investment matter for both because “allegations have been made without a formal investigation and with little or no actual or anticipated financial impact for the companies”.

He added: “In contrast, the current investigation and civil lawsuits over alleged price manipulation of treasury securities, in which both companies are allegedly involved, is assessed as a severe controversy.”