Why Pennsylvania’s HB 1671 Fails to Root Out Woke Investing

Bottom Line: Americans for Tax Reform opposes legislation (HB 1671) introduced by Pennsylvania State Representative Brett Miller. The bill ostensibly creates “transparency” by requiring the Public School Employees’ Retirement Board, the State Employees’ Retirement Board, and private equity managers to publicly disclose contractual information. Instead, the bill provides leverage, and hands more power, to pension fund boards when contracting with private equity fund managers.

The bill accomplishes exactly what the unaccountable state pension funds want while simultaneously forcing private funds to disclose detailed contractual information that undercuts competition. Moreover, this bill will do nothing to stop environmental, social, and governance (ESG) investing and proxy voting.  

  1. The bill does nothing to clamp down on ESG investing. The bill targets private equity firms instead of targeting the real ESG perpetrators: BlackRock, Vanguard, and State Street. These “Big Three” asset management firms manage “on average, 21.4% of the shares of those companies that make up the S&P 500” and “cast a combined 23.5% of the proxy votes.”
  2. The bill is not true pension fund reform. The bill panders to the pension funds by explicitly requiring that fees, carried interest, and profit information is listed in accordance with the Institutional Limited Partners Association (ILPA) guidelines. ILPA is the trade association for state pension funds, endowment funds, and other left-leaning retirement plan managers.
  3. Although the bill states that it will not require disclosures if it would “cause substantial competitive harm” or “have a substantial detrimental impact on value of the investment” or cause a breach of fiduciary duty, the enforcement of these exceptions could vary based on the individuals in power. These exceptions are subjective and could be interpreted differently depending on who is enforcing them. The potential for varying interpretations fails to assuage concerns that public disclosure of fees, fund performance, and general partner compensation will undercut competition and subsequently harm pension fund returns (forcing a taxpayer bailout).
  4. The reporting requirements in this bill mimic reporting requirements and disclosures promoted by Sen. Elizabeth Warren (D-Mass.) and President Biden’s Securities and Exchange Commission (SEC).
  5. The bill does nothing to hold pension fund boards members accountable for poor decisions, such as allowing BlackRock to manage $3.5 billion of Pennsylvania retirement money that has been invested in companies tied to the Chinese Communist Party.

Alternative Solution: Pennsylvania should draft legislation that will require pension funds to invest and vote proxies solely based on pecuniary factors. This ensures that pension funds are in line with their fiduciary duty to pensioners. This will also ensure that taxpayers will not have to bail out state pension funds that invest based on ancillary factors (politicized investing) that fail to correlate with a company’s expected future cash flows and by extension the future financial performance of a company. The American Legislative Exchange Council has model legislation to solve this problem.