Minnesota to divest Russian securities following new law

Updated with correction.

Minnesota Gov. Tim Walz’s last name was misspelled, and Mansco Perry’s last name was misspelled in one instance in an earlier version of this story that ran in the April 4 P&I Daily.

Minnesota State Board of Investment, St. Paul, must end its investments in Russia and Belarus securities in the state's $94.1 billion defined benefit plan portfolio after Minnesota Gov. Tim Walz signed a bipartisan bill on April 1.

The law requires that the state end its investments in Russia and Belarus and refrain from doing business with entities from those countries, an April 1 statement from the governor's office said.

"Today I was proud to sign this bipartisan bill into law to ensure that our state does not aid the Russian government's illegal aggression against Ukraine," Mr. Walz said in the statement.

The SBI managed a total of $135.7 billion as of Dec. 31, including $10.2 billion of public defined contribution plans and $31.4 billion in other state funds, but the board's only exposure to Russian and Belarusian securities is in the combined defined benefit plan portfolio, said Mansco Perry III, executive director and chief investment officer, in a statement on the board's website.

Mr. Perry said the DB portfolio includes equities, fixed income, foreign currency and a small interest in private market vehicles issued by entities in Russia and Belarus.

The exposure to Russian and Belarusian securities in the defined benefit plan was $240 million, or 0.25% of plan assets, on Dec. 31 and has gradually declined to $4 million, about 0.01% of assets as of March 28, Mr. Perry said.

He said the decline in the securities was due to a combination of decreased valuations and some of the portfolio's external managers selling some of the holdings.

Because of the situation in Ukraine and the sanctions issued by the U.S. against Russia, "the ability to sell these securities is limited by market and regulatory factors," and "as a result, prices for most securities have been marked down to near zero, reflecting the high uncertainty of when and if any value can be recouped," Mr. Perry said.

As of March 25, Mr. Perry said the SBI restricted the board's money managers from purchasing more Russian and Belarusian securities until further notice.

The new Minnesota law requires that the SBI create lists of scrutinized Russian and Belarusian firms they own assets in that are subject to U.S. federal and sanctions. The law mandates that at least 50% of holdings of sanctioned companies be removed from the defined benefit plan within nine months and 100% of the holdings must be eliminated within 15 months after the company has been placed on the list.

Mr. Perry said staff continues to assess market and regulatory conditions to determine the appropriate investment actions "if and when liquidity returns to the market."

The team is developing a strategy to enable staff and external money managers holding Russian and Belarusian investments to execute any legal or regulatory mandates.