Bye, Bye BlackRock: Florida divesting $2B of assets due to firm's ESG stance

BY SourceMedia | MUNICIPAL | 12/01/22 03:23 PM EST By Chip Barnett

The Florida Treasury will divest up to $2 billion of assets that are currently under management by BlackRock (BLK) because of its stance on environmental, social and governance issues, Florida's Chief Financial Officer Jimmy Patronis said Thursday.

The state Treasury will have Florida's custody bank freeze about $1.43 billion worth of long-term securities and remove BlackRock (BLK) as the manager of about $600 million of short-term overnight investments, Patronis said in a statement.

"BlackRock (BLK) CEO Larry Fink is on a campaign to change the world," Patronis said. In a letter to CEOs, he pushed "stakeholder capitalism," which he believes can alter society.

"To meet this end, the asset management company has leaned heavily into environmental, social and governance standards ? known as ESG ? to help police who should, and who should not gain access to capital," Patronis said.

"I think it's undemocratic of major asset managers to use their power to influence societal outcomes," he said, suggesting those who want to change the world should run for office, or donate to the causes they champion. "Using our cash, however, to fund BlackRock's (BLK) social-engineering project isn't something Florida ever signed up for."

Ed Sweeney, a BlackRock (BLK) spokesperson told Bloomberg News the firm was surprised by the decision since the company has delivered strong returns for Florida the last five years.

"Neither the CFO nor his staff have raised any performance concerns," Sweeney said in a statement. "We are disturbed by the emerging trend of political initiatives like this that sacrifice access to high-quality investments and thereby jeopardize returns, which will ultimately hurt Florida's citizens. Fiduciaries should always value performance over politics."

Patronis said, however, ESG "has got nothing to do with maximizing returns and is the opposite of what an asset manager is paid to do."

He said that as Florida's chief financial officer, it is his responsibility to get the best returns possible for taxpayers.

"The more effective we are in investing dollars to generate a return, the more effective we'll be in funding priorities like schools, hospitals and roads," he said.

"As major banking institutions and economists predict a recession in the coming year, and as the Fed increases interest rates to combat the inflation crisis, I need partners within the financial services industry who are as committed to the bottom line as we are ? and I don't trust BlackRock's (BLK) ability to deliver," Patronis said.

The Florida Department of Financial Services manages roughly $60 billion of taxpayer money.

BlackRock (BLK) managed $1.43 billion of Florida's Long Duration Portfolio, which includes investments such as corporate obligations, asset-backed securities, and municipal bonds. Unlike the state's externally managed portfolios by 12 different asset managers, BlackRock (BLK) exclusively managed Treasury's $600 million short-term investment fund, a cash sweep vehicle Treasury uses to help long-, intermediate- and short-duration managers in managing their cash on a daily basis.

In July, Gov. Ron DeSantis unveiled administrative actions and legislative proposals aimed at fighting the ESG movement.

Saying ESG threatens the vitality of the American economy and economic freedom by targeting disfavored individuals and industries to advance what it calls a woke ideological agenda, DeSantis is proposing legislation for the 2023 session.

The proposal will prohibit fund managers at the State Board of Administration from considering ESG factors when investing the state's money and require them to only consider maximizing returns on investment on behalf of Florida's retirees.

The legislation would also amend the state's Deceptive and Unfair Trade Practices statute to prohibit discriminatory practices by large financial institutions based on ESG social credit score metrics.

Florida is not alone in fighting against the expansion of ESG influence.

In January, West Virginia Treasurer Riley Moore said the state Board of Treasury Investments, which manages roughly $8 billion of operating funds, would no longer use a BlackRock (BLK) investment fund as part of its banking transactions.

Riley said the decision was based on BlackRock's (BLK) urging of companies to embrace net-zero investment strategies, which would hurt the state's coal, oil and natural gas industries and damage its manufacturing base and job market.

In July, Moore placed five companies on a state-mandated list of restricted financial institutions, which he has deemed engage in a "boycott of energy companies."

The five financial firms which are now ineligible for state banking contracts are BlackRock Inc. (BLK), Goldman Sachs Group Inc. (GS), J.P. Morgan Chase & Co., Morgan Stanley (MS) and Wells Fargo & Co. (WFC)

The Kentucky Bankers Association has challenged the legal authority of State Attorney General Daniel Cameron to demand detailed information from six large banks as part of an investigation into their efforts to address climate change.

In a recent lawsuit, the group accused the attorney general of overstepping statutory limitations by compelling the banks to produce documents, communications and information related to their environmental lending practices.

New York City Comptroller Brad Lander sent a letter to Fink in September voicing concern that BlackRock's (BLK) investment actions didn't match up with its ESG policy commitments.

BlackRock (BLK) is the largest asset manager in the world and manages about $43 billion for three of the five New York City pension funds. Lander is fiduciary for the city's pension funds.

Three of these funds, the New York City Employees' Retirement System, the Teachers' Retirement System of the City of New York and the New York City Board of Education Retirement System are divesting from securities related to fossil fuel companies. The police and fire pension funds are not involved in the action.

As of January, the five funds had $265.9 billion in assets under management and were the fourth largest public pension plan in the United States.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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