Dec 19 (Reuters) - The California Public Employees' Retirement System voted on Monday to maintain its restrictions on tobacco investments, opposing a recommendation by the pension fund's staff to reinvest in the controversial asset.
CalPERS staff had recommended that the board remove its 16-year ban on tobacco investments in light of an increasing demand to improve investment returns and pay benefits.
The nation's largest public pension fund embarked on an extensive review of tobacco earlier this year, after a Wilshire Associates report estimated the exclusion of tobacco had cost $2 billion to $3 billion. That was a considerably larger impact to the portfolio than CalPERS' other divested assets, such as Iran, Sudan and certain firearms-related companies.
California State Controller Betty Yee said on Monday that CalPERS should be mindful of the structural decline in tobacco sales volumes, despite the recent surge in tobacco stocks. Yee also expressed concern about the ongoing threat of tobacco litigation and regulation on the industry.
Allan Emkin of Pension Consulting Alliance said his firm did not have an opinion about a potential reinvestment but advised the board should "do what you think is in the fund's best interest."
"Divestment by definition reduces opportunity and reduces diversification," Emkin said.
Board member Dana Hollinger said she was "not a fan of smoking" but voted against continuing the tobacco ban, because "every time we divest, we are chipping away at the diversity of the portfolio."
"I see the fiduciary here as maximizing and securing benefits to our beneficiaries," Hollinger said.
CalPERS decision to reconsider its tobacco divestment had caught the attention of health groups, industry shareholders, institutional investors and many of CalPERS' beneficiaries across California.
"It is clear that there is abundant compelling and strong public policy arguments to stay out of tobacco," said board member Priya Mathur. "The tobacco industry is facing a structural decline in terms of the volume of sales and their ability to gain revenues for a number of reasons."
Reporting by Robin Respaut; Editing by Tom Brown